Banks Agree: Home Loans To Be 16% Soon

CANBERRA: With the Reserve Bank set to consider a one percentage fall in interest rates tomorrow, the major banks said yesterday that home loan rates would follow suit, perhaps within four weeks.

The major housing lenders, including the Commonwealth Bank, the St George Building Society and the National Australia Bank, strongly endorsed the Government's campaign pledge of a one percentage fall from the present 17 per cent within a month.

The Treasurer, Mr Keating, will fulfil the pledge by formally recommending a one percentage point cut in official interest rates to the board of the Reserve Bank, which meets tomorrow.

Mr Keating argued during the campaign that the cut, which would follow reductions made in January and February, would lead to a fall in home loan rates to 16 per cent within four weeks of Labor winning office.

Borrowers with a typical 17 per cent variable rate loan would save $74 a month in repayments on a $100,000 loan over 20 years.

However, the banks see little scope for falls beyond 16 per cent.

The Commonwealth Bank and the St George Building Society said yesterday that rates were unlikely to fall further once the expected one percentage point cut was made.

And these concerns are supported by the Herald's quarterly economic update which argues that the ensuing economic slowdown will not be accompanied by significant falls in interest rates.

The report says the economy will remain reasonably buoyant, and that the need to effect a sustained improvement in the current account deficit requires keeping demand in check (Full report, Page 29).

It argues that modest reductions in rates will help reduce the magnitude of the economic downturn, but that it would be economically irresponsible to deliver significant falls.

Unlike the 1982 recession, when commercial rates plummeted seven percentage points in six months, Australia now has runaway foreign debt to contend with.

The National Australia Bank supported a fall of up to one percentage point within the next four to six weeks.

A spokesman for the bank, Mr Hadyn Park, said that depending on how quickly interest rate falls flowed throught to the bank's deposit costs, it was on target to review its 17 per cent rate by the end of this month or in mid-May.

The managing director of St George, Mr Fred Shield, told the Herald yesterday that housing interest rates would fall by one percentage point by June.

The Commonwealth Bank's chief economist, Mr Paul McCarthy, told Channel Ten's Walsh Report that housing interest rates would fall, probably within the next month.

But he argued that the rise in interest rates overseas would limit further possible falls.