Interest Rates on a Downward Spiral?
For those with home loans, news that interest rates are predicted to hit an all-time low of 2.25 % in 2013 comes as welcome news. For others, this news is alarming as it illuminates the fact that the Australian economy is struggling to grow.
It had been hoped that this year would mark an economic turnaround for Australia – in part a result of the booming Chinese economy. However, the National Australia Bank has reduced its growth forecasts from 2.5 % to 2 %.
This year, unemployment levels are also predicted to increase to 5.75 %.
Despite these expectations, there is not a consensus among economists regarding the Reserve Bank’s next moves. The NAB believes interest rates will be reduced 3 times – until they hit a low of 2.25 % – while others take a far more positive view, predicting that rates will no longer be cut.
The Reserve Bank has reduced official interest rates by 1.75 % to 3 % since November 2011. These cuts were made in an attempt to foster growth and encourage spending.