RBA in interest rate limbo

Thursday 19 February 2009

Article by Mozo

The Reserve Bank of Australia (RBA) could end up breaking the back of the country’s economy as it limbos towards zero per cent interest rates.

In an article today (February 19th), the Australian warns that the Reserve Bank risks spreading panic across the country as it encourages banks to bring their low-interest home loans closer to the big zero mark.

Economic guru Alan Wood notes that this sense of fear has already caused banks in the UK and US to crumble and left policy-setters there in a very tricky situation as consumers and businesses lose hope in financial institutions.

“To raise the prospect of zero interest rates in Australia as a serious possibility … is to invite a panicky reassessment of our financial system and all this could entail,” he said.

Another hangover of slimline interest rates is that while home loan repayments may be low, savings interest rates are likely to take a bruising.

There has been something of a furore over the issue of high-interest savings accounts this week after the investment regulator ASIC warned that Aussies need to keep an eye on special rates offers which wither away after a brief introductory period.

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