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Rates on hold

By Staff Reporter
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The Reserve Bank of Australia failed to surprise industry pundits today, with the board opting to leave the official cash rate on hold.

This is the second consecutive board meeting that the RBA has decided to leave rates on hold at 3 per cent.

Speaking about the RBA’s decision, Loan Market corporate spokesman Paul Smith said that with positive economic indicators, such as growth in building approvals and retail trade as well as a 2.2 per cent inflation rate, the RBA was justified to not adjust the cash rate this month.

“Home owners would certainly welcome lower repayments but the RBA has to consider the wider implications of lowering the cash rate and today they’ve continued with the same wait-and-see strategy displayed over the past two years,” Mr Smith said.

Mr Smith said that there were several sectors and statistics the RBA was going to be watching closely over the next few weeks, whose performance would strongly dictate the direction of future interest rates.

“There are some patches of the economy that will continue to pressure the RBA to lower interest rates in the coming months, especially if the Aussie dollar continues to trade at its present value and if trade data softens,” he said.

Mr Smith said lenders were continuing to forecast a lower cash rate in the next several months, indicated by fixed interest rates continuing to drop.

“Fixed rates remain nearly a full percentage point below most variable rates. This is strong evidence that the lending markets are anticipating a rate cut. Additionally, there’s an affluence of reports that cost-of-funds pressures are easing for banks. It’s very likely we will see some strong competition in the next few months from lenders looking to offer the lowest interest rates,” he said.

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