Interest rates set to hit record low tomorrow

Australian Dollar Rate Outlook

Australian interest rates are tipped to fall to record lows tomorrow, as the effects of the global downturn threaten to hit our economy hard. Thirteen of 16 economists surveyed expect the Reserve Bank of Australia to cut the official cash rate at its monthly board meeting tomorrow.

The median forecast was for a 50-basis-point rate cut.

That would take the cash interest rate to a record low of 2.75 per cent.

A further 50-basis-point cut, if passed on in full by lenders, would knock another $77.96 a month off the average mortgage of $249,645 and would send the cash rate under the record low monthly average rate of 2.89 per cent seen in January, 1960. While domestic business data is still strong, many economists say deteriorating conditions among Australia's key trading partners will weigh on the domestic economy.

More optimistic analysts said the run of rate cuts and $52 billion in Federal Government stimulus programs would support local demand. shane of sydney RBC Capital Markets senior economist Su-Lin Ong said a 50-basis-point rate cut in March was a close call, with the Reserve near the end of its easing cycle.

"It's pretty clear they are very reluctant to cut any more but the reason we think a move is justified is the global downturn has worsened since the last board meeting," she said.

UBS senior economist George Tharenou said the prospect of a technical recession - measured by two consecutive quarters of negative economic growth - in the first half of this year justified the need for a 50-basis-point cut this week.

ANZ economist Riki Polygenis, however, said the economy is yet to feel the full effects of the large Reserve rate cuts since September. That reinforced the case for a 25-basis-point rate cut this month.

For the full story visit http://www.news.com.au/business/money/story/0,28323,25125462-5016110,00.html

Pounds to Australian Dollars = 2.2218

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