Interest rates in Australia could be soon be halved with analysts tipping a 3.75% rate by March so the Government can steer the country away from recession.

Despite official interest rates dropping two percentage points in the past three months, the National Australia Bank (NAB) expects the Reserve Bank to lower rates by another 0.75% next month to 4.5%, which will them be followed by another 0.5% cut in February and a further 0.25% reduction in March to take the interest rate to 3.75%, according to Alan Oster, NAB’s chief economist.
Such a steep cut in interest rates from their current level of 5.25% will provide huge relief to households and knock another $287 off the monthly repayments on a standard variable mortgage of $300,000. It would lower repayments on a $350,000, 25-year standard variable mortgage by $334 a month.

While the major banks have resisted passing on the full benefits of recent falls in official rates, a dramatic reduction in the Reserve Bank’s official rate would see a substantial drop in variable rates.

The big four banks - Commonwealth Bank, ANZ, NAB and Westpac - currently charge about 7.73% but the forecast hefty falls could bring the standard variable rate back down to 6.5% or even lower.

But Oster warned that the reduction of official interest rates is also a sign the RBA is very worried about how bad things are going to get especially on the global front.