Australia could face a rough ride over the next few months after the financial meltdown in the United States, with local banks less likely to pass on in full any cuts to official interest rates and those nearing retirement age facing a devaluation of their nest eggs.
The local sharemarket closed 4.3 per cent lower yesterday, after falling to its worst level in almost three years and losing about $55billion in value.
AMP Capital Investors chief economist Shane Oliver said, ''For investors generally I think it is going to remain a fairly rough ride for some time to come.''
Australian stocks fell after US President George W. Bush failed to get approval from the US House of Representatives for a $US700billion ($A866 billion) Wall Street bail-out plan to support the nation's financial system.
The volatility in financial markets is expected to put pressure on the Reserve Bank of Australia to cut its official interest rate when it meets next Tuesday with markets now mulling over the chance of a 50 basis point cut.
But any rate cut is not expected to be passed on in full by all the banks because the tightness in global credit markets is keeping wholesale funding costs high.
Dr Oliver said he expected the Reserve Bank to cut rates but for the reduction not to be fully passed on.
''If the RBA does 25 basis points next week then the banks would pass on at least 15 to 20 basis points,'' he said.
''Another option is for the RBA to cut by 50 basis points knowing that the banks would pass on about 40 basis points.''
While mortgage-holders might benefit slightly if the Reserve Bank cuts rates, Australians nearing retirement age are expected to be hit the hardest by the declines in the sharemarket.
Superannuation fund experts predicted an average loss of 12 per cent on balanced funds for the year to November 2008.
Commonwealth Securities equity economist Savanth Sebastian said, ''If you're close to retirement it is unfortunate and you may see that retirement might be pushed back a few years. If you're outlook is longer term then there is light at the end of the tunnel.'' AAP