Rates set to be slashed - will banks follow?

INTEREST rates will be cut deeper and faster than previously expected, as the global financial crisis continues to bite.

Rates set to be slashed - will banks follow?

INTEREST rates will be cut deeper and faster than previously expected, as the global financial crisis continues to bite.

Analysts surveyed by The Advertiser are expecting rates to drop by up to 75 basis points by the end of the year, to 6.25 per cent.

Financial markets are expecting the Reserve Bank to cut the official cash rate by 50 basis points next week, bringing the rate to 6.5 per cent.

Banks are refusing to guarantee they will pass on the cuts in full and analysts have warned they are unlikely to.

ANZ chief economist Saul Eslake said the banks were unlikely to pass on all of a 50 basis point cut and even less if the cut is just 25 basis points. "I'm sure (the RBA does) not want the rates that customers are paying to go up," he said.

"The question is whether they think the rates ought to come down."

Analysts surveyed before the interest rate cut last month unanimously forecast the next downward movement would be just 25 basis points.

Steep falls on global share markets, in the wake of the abortive vote on the $US700 billion bailout package earlier this week and economic problems in Europe and Britain, have prompted some analysts to revise this position.

The possibility of a co-ordinated global interest rate cut by central banks to reinvigorate the world economy has also been suggested.

The Bank of England is tipped to lower its rates from the current level of 5 per cent when it meets next week, with many economists forecasting rates of just 3 per cent this time next year.

AMP Capital Investors chief economist Shane Oliver expects the US Federal Reserve to drop its rates, from 2 per cent now to 1.5 per cent in the next three to six months.