How Low Can Interest Rates Go?

The Reserve Bank of Australia has again lowered the cash interest rate this month, which means pressure is again on banks and lenders to pass on at least a proportion of the rate cut to mortgage holders. But how low can interest rates go?

The futures market is currently predicting that there will be a fairly big drop in the official cash rate this year, potentially going as low as 2.50 percent by Christmas 2012. For homeowners, this could mean that the average basic variable home loan product could be as low as 5.10 per cent by the end of the year.

We saw some major drops on the stock market this week, and with uncertainty over the state of global economic conditions, it’s likely that the Australian economy will be held together by the RBA cutting rates again in coming months, but we will just have to wait and see what happens.

If banks and other lenders do decide to pass on this month’s full interest rate cut (which is unlikely), it would make for another bit of welcome relief for mortgage holders at least. We’ll wait to see what they do, and whether it opens up lending opportunities to more property buyers.

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