May 06, 2014
RBA leaves rates on hold...for now
A weaker than expected rise in consumer prices combined with strong unemployment data has encouraged the Reserve Bank of Australia to leave the official cash rate on hold.
This was the ninth consecutive month that the Reserve Bank of Australia has left the official cash rate on hold at the historically low level of 2.5%.
The latest data from the Australian Bureau of Statistics found the headline inflation rate for the first quarter of this year rose by 0.6% - slightly less than the 0.8% rise economists were predicting, this weaker than expected result meant the annual inflation rate is currently sitting at 2.9% - within the Reserve Bank’s target range of 2 to 3%.
With inflation now sitting comfortably within the RBA’s target range, the Board would have thought it prudent to leave the official cash rate on hold for yet another month.
In addition to the weaker than expected inflation result, the recent positive employment data would have also encouraged the Board to leave rates on hold.
According to the Australian Bureau of Statistics, the unemployment rate dropped 0.2% in March to sit at 5.8%. This drop suggests the Australian economy is in pretty good shape at the moment, so there is no urgent need for the Reserve Bank to play around with its current monetary policy setting.
Further, property prices continue to climb moderately across Australia, with recent research by RP Data showing capital city dwelling values rose 2.3% over the month of March. After a flat result in February, dwelling values have managed to post a 3.5% capital gain over the first quarter of the year.
With that in mind, now is a good time for potential home buyers to jump onto the property ladder and capitalise on the positive market conditions and growing property prices.
There is no doubt rates will climb eventually, but right now they are sitting at historically low levels. So for those potential borrowers who have the means to get onto the property ladder, now may be a good time to do so.
Alternatively, if you already own a home, now may be a great time to review your current mortgage and make sure you are still in the right product for your needs, as you may find there is a better deal out there for you.