Rates on Hold?

After twelve consecutive Interest Rate rises since May 2002, it now appears that the Reserve Bank of Australia will put a hold on Interest Rates at its next meeting in May. With Inflation seemingly under control Interest Rates may have peaked with the next forecast movement being a downward one, though not until 2009 it seems.

Whilst the Governor of the Reserve Bank of Australia, Glenn Stevens, declined to comment publicly yesterday regarding the future direction of Interest Rates, the minutes from the banks last meeting earlier this month were released publicly and it seems that the view from the RBA is that the economy has started to slow down.

"The slowing global economy and tighter financial conditions in Australia were likely to reduce expansionary forces on the economy," the RBA minutes said. Despite this announcement the Consumer Price Index, which will be released over the coming days, will still show inflation running at 4% which is still way over the 2-3% level that is aimed for by the RBA. As a result, Interest Rates are expected to remain at their current levels when the board meets in May.

The significant pressure that the current Interest Rate climate has forced onto working families and businesses alike was not lost on the Governing Bank, "the current stance of monetary policy was exerting a significant restraining influence on both households and businesses," the RBA minutes said. This is a sure sign that the measures put in place by the RBA over the past few years have had the desired effect of slowing down a booming economy, one with record low levels of unemployment and increasing average wages. It also suggests that the current difficult climate that many working families are operating in is being taken into consideration when determining future movements.
Four consecutive rate rises from every RBA meeting since August last year will almost certainly see the RBA reduce its inflationary forecast for 2009-2010, indicating that the effect of monetary policy has had the desired impact on the overall economy, even though it has been difficult for working families over this period.

Most of the big four banks have agreed with the RBA that recent policies have begun to slow the economy, though some believe we are not out of the woods just yet. Commonwealth Bank chief economist, Michael Blyth, said while it seems the RBA has done enough to curb inflation for the time being, the commodity boom which is stronger than ever may see inflation spiral out of control once again. An increase of 15% in the terms of trade is expected as a result of huge increases in the price of coal and iron ore, this could have a huge bearing on the CPI later this year.

NAB chief economist, Alan Oster, was more optimistic about the immediate outlook,"it is extremely unlikely rates will go up next month and we expect the RBA will leave rates on hold until February 2009 when it will begin cutting," Mr Oster said.

This is welcome news for those currently feeling the pinch of higher interest rates and even better news for those wanting to enter into the housing market over the coming years as loan affordability will almost certainly increase. To find a loan that is suitable to your needs simply compare products from our panel of over thirty lenders and inquire to find out more.

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Published on April 4-th, 2008 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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