Business fears economy worse than expected

Tasmania's main business group says yesterday's interest rate cut shows the economic situation is worse than many people think.

The Reserve Bank surprised many by cutting rates by 0.75 of a percentage point, after a full one per cent cut last month.

Damon Thomas, from the Chamber of Commerce and Industry, has welcomed the cut but says it is a fairly extreme move.

"It's definitely a sign that it is worse and remember, that's coming from a Reserve Bank - a usually cautious body when it comes to dropping interest rates," Mr Thomas said.

"They've never, until the last one per cent, gone down more than a quarter of a per cent and here, they've gone 0.65 points in four to five weeks."

Tasmania's Housing Industry Association has urged people thinking of buying or building their first home, to take advantage of the interest rate reduction cycle.

Since September, rates have fallen by two per cent saving people with an average home loan of $300,000 about $390 a month, or more than $4,500 a year.

The HIA's Stuart Clues says the bank is trying to keep the economy moving during the global financial troubles and people trying to enter the housing market should take advantage.

"What we're seeing is the Reserve Bank trying to provide major stimulus up front to try and underpin the economy," Mr Clues said.

"Then after that I think they'll be a little more moderate but I certainly think we're entering into an interest rate reduction cycle and people should be comforted about being able to enter into a loan and to be able to service it in this environment."

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