 Interest rates should be left on hold
Is Australia ready to lift interest rates? Westfarmers chief executive Richard Goyder does not think so and has urged the Reserve Bank of Australia to leave rates on hold for a while longer.
Mr Goyder says lifting rates too early would bring our economic recovery to a halt.
He also commented that the Westfarmers' Bunnings group had seen an increase in weekday trade, indicating that many people are now working part time or taking leave on request from employers.
The Reserve Bank of Australia would be looking for concrete evidence that the economy is recovering before moving interest rates, however the rate rises could come by the end of this year as the minutes of the last RBA meeting showed that the board is considering a “less expansionary policy stance'” if the economy shows signs of being stronger than expected.
"I think if interest rates were to go up, that and reduced take-home pay would have an effect on the economy," Mr Goyder told a business lunch in Sydney yesterday.
"I think we do have to recognise there is still some fragility here and we are not out of the woods yet."
The property market has shown remarkable resilience during the past year and low interest rates coupled with the First Home Owner Grant Boost have supported the industry.
Property values have held up in most parts of the country. While some states recorded minor falls, others saw small gains. The property market has not seen the major falls in values that were seen across the pond in the US or in Britain and the low rates are a key factor in this. The RBA has slashed the official rate than 425 basis points since September 2008 and our current rate of 3% is a 49-year low.
Mr Goyder has warned the RBA that lifting rates now could undo all the progress made over previous months.
Home loan rates came down along with the cash rate, although not many lenders passed on the rate cuts in full to home owners. Mortgage rates did however fall from close to 10% to current levels of around 5.75% and this has saved home owners hundreds of dollars in monthly mortgage repayments.
The first home owner boost has been another factor in our economy remaining strong. When the government announced the boost last October, mortgage brokers and real estate agents reported a huge increase in business from first home buyer and first home owners as a proportion of all loans peaked in May with a record high of 28.5 per cent.
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