RBA keeps the cash rate on hold at 2.50% for April
At 2:30pm today the Reserve Bank of Australia (RBA) announced that the cash rate will be left on hold at the record historical low of 2.50%.
In the statement from the Governor of the RBA Glenn Stevens, he talked about the financial conditions in Australia remaining accommodative.
“Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time.” he said.
The decision was of no surprise to the top economists and commentators surveyed in the monthly finder.com.au survey, all of whom unanimously agreed that rates would be left on hold.
According to Janu Chan of St. George, there has been “very little over the past month to change the RBA's view of the world and it's clearly signalled that it's in for a period of stability.”
Paul Bloxham of HSBC says that while the decision is in part due to that fact that economic activity is picking up, there are other factors which the RBA would take into account.
“Inflation remains in the upper part of the target band and at the moment the labour market still remains weak enough to keep the pressure off wages,” he said.
While agreeing the cash rate would remain on hold for April, the economists did differ on when the rates would rise.
Paul Williams of Heritage Bank believes that interest rates will rise some time in early 2015. However, other experts, such as Michael Blythe from CBA, disagree.
“We think they're on hold for most of this year, but we have actually a rate rise in our forecast in November on Melbourne Cup Day,” he said.
Other economists, such as Michael Witts from ING DIRECT, speculated a possible increase in the December quarter of 2014. He explained that the flow-on effects of previous rate cuts were having their desired effects on the broader economy.
“Building approvals are up 35% in the year to January, although a volatile series the underlying trend is clearly very strong. The February employment data was also unambiguously strong, again although a volatile monthly series, this data adds to the ongoing successful transition outcome. The one dark stop is the strength of the currency, on the back of the improving global outlook,” he said.
Steven Pambris - Bank of Sydney
Interest Rate will remain stable for an extended period. The current record low interest rates has seen improving retail sales, building approvals and a surge in our exports. The current upward correction in residential property prices has removed the option of any consideration for further interest reductions to the RBA. In fact recent comments by the RBA is starting to be viewed as a property bubble and the RBA is more likely to consider to move interest rate upwards.
Such an increase however is not currently possible as it will be faced with upwards pressure on the AUD and closer to parity especially if economic data out of the US continue to be soft.
Obviously also, one needs to be mindful of what will in fact unfold in the May budget, as alluded to date we will see cuts in expenditure , which will more than likely have a contractionary impact on the Economy as we believe that the private sector is not in a position to take up the slack. The slack can be taken up by a more structured approach to Infrastructure development, however to date there is little on the horizon to indicate that such a move is possible in the short term. The slack can be taken up by a more structured approach to Infrastructure development, however to date there is little on the horizon to indicate that such a move is possible in the short term.
So one will expect that the RBA will wait till March 2015 before any increase in interest rate is considered, at this point though if it is to ease pressures on the AUD it will need to as a matter of urgency look at all the options available, such as sale of currency or circulation of Government Bonds where perhaps proceeds could in fact be used to fund much of the urgently needed Infrastructure projects
What does this mean for borrowers?
Lisa Montgomery from Resi Home Loans says that now is the chance for borrowers to take advantage of low rates. “It is not likely that the RBA will see the need to cut rates further in the short term, providing borrowers with the opportunity to capitalise on the continuing low rate environment.”
finder.com.au Money Expert Michelle Hutchison agreed, saying that borrowers should look towards fixing their home loan rates before it’s too late.
“We're urging more borrowers to use this opportunity with the rate pause to consider switching their home loan to get ahead of their repayments before rates start to rise." she said.