RBA pauses on rates, but more to come

By webmaster

While the Reserve Bank decided it was prudent to keep the offical cash rate on hold at 4.25 per cent at its Board meeting in Sydney yesterday, economists are still confident of another rate cut.

But, according to NAB chief economist Alan Oster, the next rate cut could be some months away.

After yesterday's shock announcement by the Reserve Bank, Mr Oster said the lender had been forced to revise its original rate projections and delay the next rate cut to May.

“The RBA has made it plain there is a case for cutting rates again if economy weakens “materially”,” Mr Oster said.

“Our activity forecasts are unchanged at around trend growth through the forecast period. That is we do not see it likely that the RBA will to have to respond to a crunch in activity. Rather, the additional rate cut, if it eventuates, is more likely to come from tightening financial conditions in the face of a high currency, higher funding costs and lower than expected price inflation.

“We have pencilled in one more rate cut in May this year, taking the official cash rate to 4 per cent. After that, it looks like the RBA will be on hold for a considerable time – at least until mid 2013.”

MFAA chief executive Phil Naylor said if this is the case, brokers will be forced to seek out business opportunities, rather than wait for the market to reignite.

“The gauntlet has been thrown down to borrowers, who should be motivated to seek a better mortgage deal, including a lower rate from another lender,” Mr Naylor said.

“Mortgage brokers currently have a market share of 43 per cent of the mortgage market and represent the best chance for borrowers to negotiate a better deal with their own lender or move to another.

“No change to rates, the onus is now on borrowers to seek out a better deal for themselves in a very competitive market. “

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