How low can interest rates reach?


I never had any good to make the void.

Partly because of my lack of flexibility, partly because of the lack of balance and partly because I can only break into dance every time someone turns the bitter melody of Chubby Checker, Limbo Rock.

The Australian Central Bank, on the other hand, is big in the gap when it comes to interest rates.

Over the past eight years, the official cash rate has fallen 12 times, a total of 3.25 percentage points, to the current 1.5%.

And now that he has returned to warnings that rates will rise, causing several economists to anticipate cuts in interest rates later this year, the big question is clear.

How Much Can Bank Reserves Go?

I hear 1 percent? Do I hear 0.5 percent or zero percent? And what does the duty all mean anyway?

The kids are great in the gap, but the Reserve Bank of Australia is even better.

The kids are great in the gap, but the Reserve Bank of Australia is even better.

A lower interest rate means borrowers pay less for their mortgages, savers take less than their bank deposits, and the Australian dollar is likely to fall in value – bad for travelers going abroad but good for exporters.

The RBA rate acts as a parking brake or accelerator in the economy. Increasing the cash rate slows things down because it costs more to borrow money while the interest rate cut should be a hand-in-hand to boost consumer spending, inflation and economic activity.

But the dozens of interest rate cuts since November 2011 have not caused our economy to go gangbusters, and there is no guarantee more cuts will do the same.

RBA interest rate movements move towards short-term interest rates and variable interest rates on the mortgage loan.

So if RBA makes two extra cuts by 0.25 percentage points to 1 percent over the next 12 months, borrowers are expected to pay about 0.5 percent less than their loans.

However, lenders are not shy about setting their rates even when the RBA is not, and many have done it in recent months.

If RBA really gets into the unstable spirit and our economy guarantees it, it can reduce the cash rate to zero. This would result in several mortgage rates around 3%.

Beyond zero, it could follow the lead of the US during the global financial crisis and start printing money in a practice known as quantitative easing.

This strategy worked well for the Americans because the dollar is considered the reserve currency of the world, but not so well in countries like Zimbabwe, which broke and suffered hyperinflation.

No one knows what will happen in Australia and no one predicts that the official interest rate will reach zero in the current economic climate.

However, RBA said at the end of last year that most reductions in rates and quantitative easing were tools that could be used if needed.

Whatever your interest in interest rates – whether as a borrower, savings, investor or first homeowner – you should keep in mind that RBA's striped stick seems to be getting more and more down.



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