More rate cuts still possible due to deflation

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Analysts predict that the official interest rate could reach one per cent as the Reserve Bank tries to engineer stronger prices and pull the country out of possible deflation.

In spite of the economic growth, many analysts expect the RBA to cut the rates to 1.5 per cent before spring and even be forced as low as one per cent.

Sally Auld, head of fixed income and currency strategy at JP Morgan in Sydney, said that the RBA's slashing of its inflation forecast in the next two years might mean more rate cuts are in the cards.

"Our forecast for rates to trough at 1.5 per cent," she said. "But we are signalling that the risk must be to trough lower given what we saw with inflation. It has certainly opened up a move below 1.5 per cent, which not long ago most people would have regarded as a small probability."

The lower rates could be a major boost for mortgage holders struggling with household debt. Australia's four major banks have already passed on the latest cut, but they will once again be under pressure to reduce mortgage rates if the RBA lowers the cash rate.

However, this would be bad news for both savers and retirees, who could lose up to $1.9 billion in interest on their savings because of the latest cut. The Australian Prudential Regulations Authority shows that households have a total of $778.4 billion in deposit and savings account.

According to Finder.com.au money expert Bessie Hassan, "The impact of these rate cuts is likely to hurt Australians who are saving, or relying on their savings as a form of income, such as retirees."

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now

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Monday, Sep 25, 2017
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