Interest rates in Australia remain unchanged by the Reserve Bank of Australia at 4.5 percent after earlier expectations that the RBA would increase official interest rates 25 basis points to 4.75 percent.
The Reserve Bank Board defied economists’ predictions by leaving interest rates unchanged, citing a belief that the strong global growth will ease over the coming year, with growth still strong in Asia, but continuing at a more sustainable pace.
Glenn Stevens, Governor of the Reserve Bank of Australia said uncertainty remained in many financial markets, particularly Europe.
“In Europe and the United States, growth prospects appear to be modest in the near term, a legacy of the financial crisis and its impact on private and public finances. Most commodity prices have changed little over recent months, and those most important to Australia remain very high.” Governor Stevens said.
Domestically, Australia’s economy is growing at “about trend” over the past year, with the RBA comfortable that this level of growth will not increase inflationary pressure substantially in the short term. The winding back of the Federal Government’s fiscal stimulus continues, with private demand now picking up where public spending is retreating.
RBA Governor Stevens expects CPI inflation for the September quarter to come in at about 2.75 percent when figures are released later this month. Should inflation come in above expectations the RBA will likely increase interest rates to 4.75 at the November board meeting.
“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being. If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.” Said Mr Stevens.
Mortgage Choice spokesperson Kristy Sheppard applauded the rate freeze, but expects interest rates to increase sooner rather than later, if not by the RBA, then by the banks themselves.
“However, it’s pretty much a given we’ll soon see an increase to variable rates prompted by either a Reserve Bank cash rate move or by lenders moving interest rates regardless. The vast majority of economists say we’re looking at several rate rises by the end of 2011. Anyone who’s not aware of this and has, or is looking to take out, a variable rate home loan needs to catch up quickly on the information out there and prepare their budget now.” she said.
Treasurer and acting Prime Minister, Wayne Swan yesterday in an interview with Madonna King of ABC Radio cautioned the banks from an interest rate increase out of step with the RBA.
“I don’t believe, Madonna, there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank. Banks are making healthy profits at the moment.” Mr Swan said.
