Analysts believe the Reserve Bank will have to cut at least once more to boost growth.
Last week's 0.25 percentage-point cut in interest rates by the Reserve Bank to 3.25 per cent was good news for home buyers. The rate cut will save almost $50 a month on the typical variable-rate mortgage taken out over 30 years, according to RateCity.
That is, provided lenders pass on the full rate cut. Of the lenders that have responded to the rate cut so far, most have reduced their variable mortgage rates by 0.2 percentage points.
Most economists say it is likely the Reserve Bank will cut rates at least one more time, and probably more, before completing this cycle of rate cuts that began in November last year.
CommSec is pencilling in another rate cut for November 6, Melbourne Cup Day. ''The Reserve Bank still believes rate cuts act to boost growth and it doesn't tend to move rates just once,'' Craig James, CommSec's chief economist, says.
''Further, the global environment remains fluky and good inflation data is expected later this month.'' With inflation weaker than normal, the Reserve Bank can cut rates and keep inflation under the annualised 3 per cent upper limit it targets.
The chief economist at AMP Capital Investors, Shane Oliver, says the cash rate could go as low as 2.5 per cent before the bank is finished.
''The Reserve Bank has to cut the cash rate more deeply than in past tightening cycles to get a decent upswing in the non-mining part of the economy, as banks are not handing on the rate cuts in full,'' Oliver says.
''Also, with Australians cautious about taking on debt, the 'neutral' setting for the cash rate is probably lower now than it was before the global financial crisis.''
The head of investment markets research at Perpetual, Matthew Sherwood, says there could be another cut by the end of this year to ''give household spending a bit more support'' as global growth remains weak and the resources boom peaks.
The Reserve Bank may want to wait until December to help with spending over the Christmas period, he says. If the mining investment boom slows more than the Reserve Bank expects, ''we could see interest rates below 3 per cent'', he says.
Another cut of 0.25 percentage points would take the cash rate to 3 per cent, back to where it was in April 2009 when the cash rate was the lowest it has been for almost 50 years.
Lower rates should help house prices. James says the combination of low interest rates, rising migration numbers and soft housing construction should keep house prices rising.
That is, provided buyers have confidence to act on attractive conditions, he says. Since late May, home prices nationally have risen by an annualised rate of almost 9 per cent.
For Australians travelling overseas, there is unlikely to be much change in the value of our dollar. While lower interest rates have weakened the Australian dollar, there is still a lot of ''safe haven'' demand for Australian-dollar-denominated assets from foreign investors, including central banks, Oliver says. The dollar will likely be ''range-bound'' between US95¢ and US $1.10, he says.
For home buyers, the best way to make the most of the rate cut is to keep their mortgage repayments at the same level as before the cut, Michelle Hutchison, a spokeswoman for RateCity, says.
''This could save borrowers potentially thousands of dollars and reduce the loan term,'' she says. Not only is a lot of interest saved by maintaining repayments, but the borrowers are leaving themselves with plenty of slack in the household budget for when rates rise again, as they will eventually, Hutchison says.