Rate cuts – RBA forced to go big

The Reserve Bank will be forced to make big cuts to interest rates in coming months to ensure that at least some of the cuts are passed on by banks and lenders to their borrowers says Macquarie Bank's interest rates strategist Rory Robertson.

Major Banks have confirmed that they are unlikely to pass on in full future rate cuts by the Reserve Bank. Most economists believe official interest rates will fall to as low as two per cent by Christmas.

Robertson says the official interest rate could be lower than two per cent by the end of 2009. "Australia's deepening job losses, alongside the perhaps only 40 per cent pass-through of the RBA's 25 basis point cut this week, have increased the risk that the RBA ultimately will be forced to cut well below 2 per cent," he said.

Source: The Daily Telegraph