OFFICIAL interest rates could soon be cut for the first time in two years as global economic woes take their toll on the Australian economy. Rates for some home loans are starting to fall already and the chance of a drop in the official benchmark rate has increased, The Advertiser reported. Reserve Bank of Australia governor Glenn Stevens yesterday gave the strongest indication yet that the next move would be down. Mr Stevens said while the Australian economy remained very strong, especially in the resources sector, the high Australian dollar and "cautious behaviour by households . . . have had a noticeable dampening effect" on the economy. Rates for fixed-interest loans have been dropping steadily since the start of the year, despite the RBA keeping the official rate steady at 4.75 per cent, with Westpac media relations manager Nick Buchan saying yesterday a combination of better borrowing rates for the banks and demand from customers was driving rates down. Some Westpac products have already fallen by 100 basis points since January - a saving of about $190 a month on a $300,000 loan. NAB was the latest bank to trim its one-year fixed interest rate, shaving 0.15 per cent off the rate on Monday to 6.34 per cent, while Westpac dropped its three-year rate last week. Variable-rate loans, which are more popular, have not yet started to fall, but a drop in the official rate would put pressure on the banks to follow suit. For much of this year the strong Australian economy has led the RBA to speculate on whether rates will need to rise to curb inflation, but the uncertainty about the financial outlook for the US and Europe has moderated that view. Mr Stevens said yesterday the global economic environment was still "very unsettled". "While there remain good reasons to expect solid growth over the medium term, the indications are that the pace of near-term growth is unlikely to be as strong as earlier expected, due both to local and global factors, including the financial turmoil and related effects on business confidence," he said. In RBA terms, this means a rate decrease is not out of the question. Before the announcement analysts were almost unanimous that rates would remain on hold, but the consensus appears to be softening. On October 26 the Australian Bureau of Statistics will release consumer price index figures - a key measure of inflation - for the September quarter. Business SA chief executive Peter Vaughan said while the decision was expected, a cut in interest rates was needed before Christmas. "Consumers need the confidence to get out and start spending again," Mr Vaughan said. "Business and consumer confidence remains low and a cut in interest rates would provide a much-needed boost at what is a very important time of year."

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