The RBA leaves interest rates on hold

At its meeting last week, the Reserve Bank of Australia decided to leave the official cash rate unchanged at 4.75 per cent.  This choice is good news for the residential property market and will definitely help to ease the pressures felt by many Australian home owners and prospective buyers. 

From where we sit at CENTURY 21 Australia, this decision was the appropriate one for the RBA to make.  Parts of our nation have recently been devastated by flooding, the full impact of which we are yet to understand.  Additionally, recent figures suggest that underlying inflation is currently falling within the RBA’s medium-term target range. 

In his statement that followed the meeting, the Governor of the RBA, Glenn Stevens, referred to several aspects of economic activity, including the impact of the Queensland and Victoria floods and current inflation,  that were influencers of the bank’s decision to leave rates unchanged and give some idea as to how the bank will move in future months.   

According to the bank, inflation is consistent with the medium-term objective of monetary policy, with recent data showing underlying inflation at around 2 ¼ per cent in 2010.  The RBA expects that inflation over the year ahead will continue to be consistent with the 2 – 3 per cent target. 

The flooding that has occurred in Queensland and Victoria is currently having a temporary adverse effect on economic activity and prices, according to Governor.  However he also stated that the bank’s preliminary assessment is that the net additional demand from the required rebuilding that will take place is unlikely to have a major impact on the medium-term outlook for inflation. 

Essentially the RBA looks to remain cautious about interest rates.   However with some generally positive comments about the Australian economy, as well as a prediction that inflation will continue to remain consistent with the bank’s target over the year, it seems that for the next little while at least, borrowers can take comfort that rates shouldn’t drastically change. 

Having said that, I would still encourage mortgage holders to take advantage of this rate reprieve and use it as a time to prepare for the increased mortgage payments that will come with rising interest rates in the future, which is a very real possibility. 

And for those of you who are preparing to enter or re-enter the property market, this period of steady interest rates may be a good time for you to act, if of course you are in a ready financial position to do so.

Posted by Charles Tarbey on 07/02/2011 at 12:22 PM | Categories: Finance -


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