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RBA keeps rates on hold for eighth straight month

The RBA has left interest rates on hold again today with the cash rate remaining at 4.75%. rates last increased in November last year.

Following higher-than-forecast CPI figures for the June quarter that was announced last week economists were split over whether the central bank would raise interest rates.

I’ve read good arguments from both sides of the interest rate camp, and while I’m happy that the RBA held back today, I realise it’s not “if” rates will rise, but when rates will rise.

The RBA is only putting off the inevitable and I expect at least 2 rate rises in the next 12 months, with the first one this side of Christmas.

The RBA confirmed its bias towards lifting rates, warning it remained concerned about the outlook for inflation and that it was appropriate “under such circumstances … to exert a degree of restraint”

By now you would know that our rate of inflation (3.6%) is higher than the RBA’s target range of between 2% and 3%. This made some commentators suggest rates would go up today.

However in his statement following today’s decision, RBA Governor Glenn Stevens revealed that global concerns (especially Europe and the USA) outweighed domestic inflation worries concerns over economic problems in Europe and the US were factors identified as inhibiting a rate rise.

“At today’s meeting, the board considered whether the recent information warranted further policy tightening. On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks. In future meetings, the board will continue to assess carefully the evolving outlook for growth and inflation,” Stevens says.

On the issue of inflation, Stevens said year-ended CPI inflation has been high, affected by the extreme weather events earlier in the year.

“As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years. While they have, to date, remained consistent with the 2 to 3% target on a year-ended basis, the board remains concerned about the medium-term outlook for inflation,” he says.

Currently the market remains balanced between positive forces (our strong fundamentals) and negative forces (poor consumer confidence) and until some of the uncertainty clears we’ll see many home buyers and investors sitting on the sidelines waiting to see how things pan out. They’re scared of making a mistake and either buying the wrong property or over-committing to something that could slide in value.

While the decision not to raise rates is good news for property, I feel the average Australian is still concerned about the local economy and all that’s happening in the world economy and will keep saving their pennies as they have been for the last year or so rather than spending.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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