Industry praises RBA rate freeze

Brokers and industry bodies have praised yesterday’s decision by the Reserve Bank to leave the official cash rate untouched, while cautioning against future rises. In its statement yesterday, the RBA said it was satisfied with underlying inflation, and believed the inflationary impacts of widespread flooding would be negligible. Loan Market chief operating officer Dean Rushton applauded the decision, and urged the bank to resist any rate hikes in the immediate future.
“It is understandable that the RBA has resisted increasing rates this month with the nation trying to recover from natural disasters in Queensland and Victoria. The RBA could do a lot to restore consumer confidence by remaining on the sidelines, at least for the first half of this year,” Rushton said.
MFAA chief executive Phil Naylor expressed optimism at the Reserve Bank’s outlook.
“It looks like the RBA is saying that for the time being the inflation outlook is benign, and therefore we are entitled to expect that the cash rate will be on hold for many months, maybe most of 2011,” Naylor told Australian BrokerNews.
Mortgage Choice spokesperson Kristy Sheppard, however, told Australian BrokerNews she is not as confident the Reserve Bank will leave rates untouched for the entire year.
“The RBA has been looking medium term rather than focusing on the immediate future so I wouldn’t be surprised if we see one or two pre-emptive cash rate rises later this year,” she said.
“Leaving the flood effect out of the equation Australia continues to have low unemployment and is facing a resources boom, which pushes wages growth and improves consumer and business confidence. Hence, we are still looking at strong inflationary pressures for the medium term. Regardless, we’d be delighted to see the cash rate remain on hold for the entire year to help improve the housing finance market.”
And despite the RBA decision, Sheppard said out-of-cycle rate rises cannot be ruled out.
“I hope lenders don’t make further out of cycle rate moves, but it is always possible, and more likely these days now that the link between the cash rate and variable interest rates is loosening,” Sheppard commented.

“Many lenders’ longer term funding costs are still rising, albeit slowly, which could result in them moving independently of the Reserve Bank decisions. Borrowers should be aware of this and watch their lender closely to see what moves it makes. Any lender that makes the first move will suffer a heavy blow to its reputation,” she said.

Reserve Bank Interest Rate Announcement

In its first meeting of the year today the Reserve Bank opted to keep rates on hold at 4.75 per cent.

The decision comes on the back of economic data out last week showing inflation was running lower than expected.

“This is a good start to the year for mortgage holders,” says Domain.com.au spokesperson Carolyn Boyd. “It’s likely there will be rises later in the year, so this presents a window of opportunity for people with housing debt to pay a little extra down.”

Each 0.25 per cent interest rate rise adds another $50 to the monthly cost of an average Australian mortgage.

The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

Today’s decision will be a boost to the opening of this year’s property market, which is just starting to ramp up now that the summer holidays have officially ended.