RBA leaves cash rate on hold.
For what is now its eleventh consecutive month at the record low, the Reserve Bank of Australia has again decided to leave the cash rate unchanged at 2.50%.
The decision was unanimously predicted by all eighteen economists in the country’s largest RBA expert survey, conducted by finder.com.au.
Michael Blythe from the Commonwealth Bank said that “the economy appears to be improving, but there's still a lot of uncertainty of course so it's the RBA's preference to wait and see what happens.”
Many experts agreed with Mr. Blythe, citing unsettled economic conditions as the reasoning behind the RBA’s decision.
“We're in a holding pattern, and I think that will remain the case for some time. The Reserve Bank has cut interest rates to record lows in response to the still unfolding mining investment slowdown to boost the rest of the economy, and there's tentative evidence that it's working, but it's still tentative.” said Shane Oliver from AMP.
The majority of experts surveyed predicted a cash rate rise in the next twelve months, including Nicki Hutley from urbis who said the cash rate was likely to rise by 25 basis points in late 2014.
Although don’t pencil the date into your calendar just yet. There’s still a lot of uncertainty as to when the rate will change, as explained by Garry Shilson-Josling of AAP: “The outlook is highly uncertain, but in the absence of a major global shock the RBA should start lifting rates again after a fairly long wait as the economy slowly gathers pace...Even so, it's easy to imagine very plausible alternative scenarios where the RBA starts raising rates late this year or delays until late 2015.”
Forecast of the month - Paul Williams, Heritage Bank
The RBA appears happy with current rate settings while the domestic economy tries to build some momentum. The RBA will be keeping an eye on the trends in unemployment, the strength of the Australian dollar, inflation levels, developments in key offshore economies, as well as rising tensions in the Middle East. At this stage our view is that the next cash rate movement will be an increase, but not until well into 2015.
What does this mean for borrowers?
Fred Schebesta, Director at finder.com.au, said that the borrowing outlook is expecting to worsen as interest rates rise.
”The forecast is looking bleak for many Australians who are already struggling to get onto the property ladder. The key is to do your research and budget – you could end up saving money by entering the market before interest rates are set to rise.”