 RBA leave interest rate at 3.25%
The Reserve Bank of Australia today opted to leave official interest rates unchanged. In a sign that the economy may be showing signs of a recovery the RBA has left rates at 3.25 per cent.
Following four consecutive rate cuts the central bank is, for now at least, holding off cutting rates any further. Since September last year the official cash rate has been slashed by 400 basis points and home loan interest rates cut by almost as much.
The decision could be a sign of strength, as stronger-than-expected international trade and retail figures indicate the economy may be growing slightly despite current world economics. Sales of new homes are up 8.3 per cent in January according to new data from the Housing Industry Association and boosts to the First homeowner grant along with one off handouts in the government's stimulus package may be boosting the local economy.
Macquarie Bank's interest rate strategist, Rory Robertson, was expecting rates to be held, suggesting the RBA may be leaving some "fuel in the tank" for later interest rate cuts to stimulate the economy. With the second stimulus package injecting money into the bank accounts of millions of Australians from April, the Reserve Bank could afford to see whether the economy recovers without the need for further rate cuts.
While economists were mixed on how much the Reserve Bank would cut rates today, a small cut had been predicted. This decision will leave many stunned. Despite some positive housing figures, tomorrow's national growth figures are expected to reveal Australia’s economy went backwards by as much as 1 per cent in the last three months of 2008, its first quarter of negative growth in seven years.
RBA governor Glenn Stevens told a parliamentary hearing in Canberra earlier in February that big rate cuts, fiscal stimulus programs and a weaker Australian dollar would help support domestic demand in 2009.
Home loan interest rates have traditionally lowered when the official cash rate has been cut. Although not all lenders passed on the previous RBA rate cuts in full, most lenders passed on most of the previous cuts, pleasing home owners will a variable rate mortgage and saving them hundreds of dollars a month in mortgage repayments.
With today's decision to leave official rates untouched, it is unlikely that banks will lower home loan rates. Mortgage rates have fallen from nearly 10 per cent in mid-2008 to just below 6 per cent currently. Following the February cut of 1 per cent most lenders passed on this reduction in full to home owners.
Some economists did suggest the RBA may leave rates unchanged today but are confident of further cuts in April if the economy does not pick up. Prediction that interest rates may reach 2.25% are still being discussed.
The Reserve Bank next meets on 7 April and homeowners will be eager to see if there will be any change to rates.
Join the discussion on Interest Rates - Up or Down?
|