In a boon for homebuyers and mortgage holders, interest rates could be cut as soon as next month - and stay that way for years to come.

It follows Reserve Bank governor Philip Lowe flagging on Thursday that the official cash rate will likely stay at a record low for at least three years as part of the bid to revive the COVID-battered economy.

Dr Lowe also urged state governments to do more to help recovery and "borrow at record low rates and have an important role to play in the response".

Reserve Bank of Australia (RBA) governor Philip Lowe has flagged that interest rates could drop below 0.25 per cent. Picture: AAP Image/Joel Carrett
Reserve Bank of Australia (RBA) governor Philip Lowe has flagged that interest rates could drop below 0.25 per cent. Picture: AAP Image/Joel Carrett

 

CBA senior economist Kristina Clifton said there were expectations that the cash rate could be dropped from the already record low rate of 0.25 per cent to 0.1 per cent.

"It's not something we've seen before, but the COVID pandemic has been an extreme event," she said.

"If the RBA were to cut rates again, we could see ­borrowing rates come down a little further.

"The housing market is very sensitive to interest rates and has held up well despite COVID and the recession."

Ms Clifton said while the RBA had flagged interest rates remaining at historic lows for three years, it could be for longer if needed to see inflation return to healthier levels.

Dr Lowe said that there had been little purpose in dropping interest rates further while the economy was still in lockdown.

"As the economy opens up, though, it is reasonable to ­expect that further monetary easing would get more traction than was the case earlier," Dr Lowe said.

Support measures such as JobSeeker and JobKeeper had kept many businesses afloat during the pandemic, but he called for state governments to do more. "The states and territories can also borrow at record low rates and have an important role to play in the national fiscal response," Dr Lowe said.

Treasurer Josh Frydenberg says it’s up to people how they spend their money, not the government. Picture: NCA NewsWire/David Mariuz
Treasurer Josh Frydenberg says it’s up to people how they spend their money, not the government. Picture: NCA NewsWire/David Mariuz

He said whether people spent or saved their money from various support measures would depend on how confident they were that the virus had been contained.

Treasurer Josh Frydenberg said the government would not tell people how to spend their money. "So if they are paying down their mortgage or if they are paying down their credit card debt then that's a decision for them," he said. 

 

 

 

 

 

 

 

 

Originally published as Interest rates tipped to plunge to 'extreme' new low



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