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Rate pressures ease – for now

By webmaster
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In its much anticipated first meeting for 2011 the Reserve Bank this week voted to keep the official cash rate on hold at 4.75 per cent but Australians are not out of the woods just yet.


In reaching its conclusion on Tuesday the Reserve Bank’s Monetary Policy Board highlighted the conflicting forces present within the Australian economy.

Indeed, our terms of trade is at its highest level since the early 1950s, employment growth is strong as is income growth and there are further indications that private investment is beginning to pick up in response to higher commodity prices.

In the household sector in contrast, the board noted that there continues to be caution in both consumer spending and borrowing and asset values remain generally unchanged.

Interestingly, the board also made reference to the recent flooding in Queensland and while it conceded the floods would have a “temporary adverse effect on economic activity and prices” it made it clear the natural disaster would not influence its monetary policy decisions.

“The bank will, as on past occasions where natural disasters have occurred, look through the estimated effects of these short-term events on activity and prices. The focus of monetary policy will remain on medium-term prospects for economic activity and inflation.”

Speaking to Smart Property Investment, RP Data research analyst Cameron Kusher said despite the central bank’s decision to continue its rate reprieve in February, rate pressures have certainly not abated.

“I certainly expect that at some time during the next year we will see some interest rate hikes, and potentially a couple over the year,” he said.

According to National Australia Bank forecasts, the next rate hike will most likely hit in the second or third quarter of the year.

In any case, it appears Australian property buyers should at least benefit from an extended period of interest rate stability with no rate hike expected, at this stage, before March or April.

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