15th January 2009

Interest Rates - Where to now?

Over the past seven years we have seen a steady increase in interest rates in Australia, as our economy has experienced consistent growth. As a result of inflationary pressures, the Reserve Bank of Australia (RBA) increased the cash rate to a high point of 7.25% in March. Lenders, for the most part, increased their rates accordingly, however, in January of last year we saw the first of many independent moves made by the 'big four' (ANZ, CBA, NAB, Westpac), to try to combat high costs due to the American crisis.

Given the current local and, more severely, the global economic decline, we have seen a dramatic turnaround over the past few months. The RBA decreased the official cash rate from 7.25% to 7.00% in September and then dramatically decreased it again by 100 basis points in October to 6.00%, with a further reduction of 75bps in November to 5.25% and a cash rate of 4.25% in December, with the hope of slowing the economic downturn we're currently experiencing.

The RBA is not alone in this move to decrease the cash rate, with other economies following suit.

The U.S. Federal Reserve decreased its cash rate twice in October, the latest by 50bps, making it just 1% and now a target of between 0-0.25% in December! The Bank of England has also slashed its cash rate by 150bps in November to 3.00%, which was the lowest it's been since 1955, and now the official rate sits at 1.50%, which is its lowest in 300 years!

What is clear is that all economies are using monetary policy to address the turmoil of the economic crisis, and rates are being set at levels never before seen. Also, economic scholars and commentators are divided in their views on where all this will lead - hyperinflation, inflation, stagflation or deflation - who really knows.

2009 will be a year of continued close monitoring by all in the finance sector and at La Trobe we will continue to do our best to deliver the product and service standards our customers have come to expect.

Best regards
Iain Pepper


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Iain Pepper
Head of Lending

Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website. La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you. (1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Investors risk losing some or all of their principal investment. (2) The rating report is available on the La Trobe website or upon request. The rating is only one factor to be taken into account in deciding to invest. (3) Withdrawal rights are subject to liquidity and may be delayed or suspended. (4) Rates (where shown) are indicative and for information purposes only and must be confirmed by your La Trobe loan manager upon formal application. Rates are subject to change. Please refer to http://www.latrobefinancial.com.au for full comparison rate schedule