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Reserve Bank tipped to keep rate

Reserve Bank tipped to keep rate article image

The Reserve Bank is expected to leave interest rates unchanged at its board meeting tomorrow, despite the deepening recession. Economists have predicted that interest rates will remain at three percent, given that they are already at a 49-year low. Despite the view that official rates may fall as low as two percent by the end of the year, it is unlikely the central bank will drop rates at the next meeting. Commonwealth Bank chief economist Michael Blythe said the Reserve would be concerned that rates at too low a level could create longer term problems that should be avoided. "Too low interest rates, for example, can cause a misallocation of credit, harming the economy’s longer-run growth potential," he said. There is also growing concern within the Reserve that any further rate cuts may not be passed on by the big banks, so they can improve their own bottom lines. The National Australia Bank refused to pass on any of the quarter percentage point cut in official rates last month, while the other big three lenders only passed on 0.1 percentage points.

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