Central bank interest rate cuts, such as the Reserve Bank's plumbing of a new historic low of 1 per cent, generally inspire one of two emotions.

Option 1: Mild celebration among homebuyers. The 0.25 percentage point cut should deliver a $700 a year saving on a $400,000 loan, depending on the largesse of the lender.

Option 2: Mild irritation for those who base a large part of their income on interest payments from their savings, with some term deposits now offering rates well below inflation.

Those thinking outside the narrow confines of personal finance may pause and worry about the bigger picture.

The RBA's cut to 1 per cent is an extraordinary state of affairs here, but less so in other economies where interest rates have been anchored near zero for years. In some cases rates have been held below zero.

Even at 1 per cent, Australia has higher official rates than most major economies; the US and Canada are higher, while Switzerland with its target rate deeply negative is in the basement.

Irrational times

Bank of America Merrill Lynch chief strategist Michael Hartnett has calculated that since the global financial crisis, central banks around the world have cut interest rates 715 times. Make that 716 after the RBA's July move.

They have also purchased about $12.5 trillion (yes, trillions, thousands of billions) in bonds to try and keep things afloat.

"We are investing in an era of irrationality, impotence and inequality … Interest rates are at 5,000-year lows," Mr Hartnett recently told his clients.

It is difficult to say what the global economy would have looked like without the concerted and co-ordinated cutting and bond buying, but pretty sick would be a reasonable guess.

However, despite that furious easing policy, things are still not looking great.

Interest rates are at historic lows and still heading down ( Supplied: BoA Merrill Lynch )

Back to the cutting board

The US Fed, having picked itself off the mat (its target rate got down to one notch above zero), is now looking like cutting again.

The Fed's recent communication that uncertainties have increased and it will "act as appropriate to sustain the expansion" has sparked a big rethink on where rates are going.

At the start of the year the market assumed the Fed would steadily push onwards and upwards from 2.5 per cent.

Current market pricing sees the Fed rate back with a one in front of it rather than a three next year.

The big forecasting agencies, the OECD, the IMF and World Bank are all trimming their growth and inflation forecasts.

As RBA governor Philip Lowe noted in his post-meeting missive, "the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside".

How low will it go?

Market Economics managing director Stephen Koukoulas had been urging the RBA to cut rates long before it was fashionable, but takes little comfort from the global trend of tumbling interest rates.

"I don't think anyone wants interest rates near zero, or even negative … it really smacks of desperation," Mr Koukoulas said.

"The ECB [European Central Bank] and Japan are negative or zero. We don't want to go there. Their economies are very weak."

IFM economist Alex Joiner said while labour market spare capacity and low wage growth forced the RBA's hand, the outlook from central banks globally no doubt played a part in the cut.

The prospect of rate cuts from the Fed, the ECB and Bank of Canada, means the RBA's hopes to lower the Australian dollar would potentially be undermined if it too didn't join in.

Dr Joiner believes it can't cut much further.

"Some people would suggest the RBA can go to 0.5 per cent before it has to consider unorthodox or unconventional settings," Dr Joiner said.

"That would be unhelpful and have unintended consequences for the banks, further eroding margins and putting pressure on bank profitability.

"Banks are effectively borrowing from the household sector to lend to business. Rates are already very, very low and you can't give depositors a zero return."

Zero rates

However, that is exactly what is happening in global bond markets.

On Bloomberg estimates, about a quarter of the global bond market — roughly $US13 trillion — has a guaranteed negative yield. About 40 per cent of this is government debt.

It is very unlikely the RBA gets to that level of desperation.

"They're [zero rates] bad news, designed to stop banks hoarding cash," Mr Koukoulas said.

"Banks [overseas] seem happy enough to lose 0.4 per cent of their money guaranteed, rather than 100 per cent in riskier places".

Mr Koukoulas, who called the RBA's cutting cycle while others were pricing in rate rises, thinks the Bank may now pause for a while given there is a flickering of positive sentiment starting to emerge in the economy.

"They've [the RBA] flagged they always have quantitative easing in the top drawer, however that will require some pretty grim news or staggeringly low inflation before it would be considered," he said.

"It is unclear whether they have done enough to kickstart the economy."

If the soon-to-be-delivered tax cuts don't deliver stronger consumer spending, if the unemployment rate continues to edge up, if the global economy sours — then you can bet the RBA will be pushed down another step to the zero rate basement.

