How low are interest rates?
Currently the official cash rate stands at 3.00 per cent – equalling lows set from April-October 2009. But the cash rate is largely at these lows because banks haven’t been in a position to fully pass on recent cuts in the cash rate. The standard variable housing rate stands at 6.45 per cent, still well above the lows of 5.75 per cent that held over April and May 2009, and above the previous low of 5.38 per cent in July 1968 and above the record low of 5.00 per cent set in May 1964.

The Reserve Bank rightly points out that the interest rates that matter most in the economy are those that are to ordinary borrowers.

The cash rate hasn’t been below 3.00 per cent since the target was established in 1990. Before 1990, the authorised dealers’ rate prevailed with minimum and maximum rates specified while a weighted average rate was calculated from August 1961. The authorised dealers’ rate ranged between 2.50-3.19 per cent in November 1959. So if the cash rate is cut on Tuesday it will probably be best characterised as the lowest rate in over 50 years (53½ years).

What does it all mean?
It is a closer run interest rate decision than in previous months. But CommSec expects the Reserve Bank to leave rates unchanged on Tuesday. Previous rate cuts are still working to lift economic activity and another rate cut at this time could actually negatively impact on fragile consumer and business sentiment.

Aussies may fret that if interest rates are being cut, then the economy is in worse shape than at the start of the year, causing people to delay investment, spending and employment decisions. The improvement in the US jobs market in recent months would also be providing encouragement to the Reserve Bank together with the recent rate cut in Europe.

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