No surprises as RBA leaves cash rate on hold

February 04, 2014
David Wilson

A stronger than expected inflation result and improvement in business confidence has encouraged the Reserve Bank of Australia to today leave the official cash rate on hold at 2.5% for the sixth consecutive month.  

The decision was largely unsurprising given the recent strength of the Australian economy. New research from National Australia Bank found business conditions and confidence is on the up, with conditions reaching a two and a half year high.  

Further, the inflation results for the December quarter were stronger than expected, with underlying inflation climbing by 0.9% to sit right in the middle of the RBA’s target band range. This surprise jump in inflation in the final quarter of 2013 has reduced the chance of another rate cut in the official cash rate by the Reserve Bank.  

On top of the strong inflation and business confidence results, consumer confidence currently remains comfortably in the zone where optimists outnumber pessimists.  

According to the latest Westpac Melbourne Institute of Consumer Sentiment Index, Australians are relatively optimistic about the economy. There is evidence that both house prices and housing activity are responding well to the low interest rate environment and this is no doubt having a positive impact on confidence.  

This spate of positive economic data suggests the Reserve Bank of Australia was right to leave rates on hold this month. Further, it indicates that the official cash rate could remain on hold for some time.  

We expect the RBA to err on the side of caution and leave the cash rate untouched for the foreseeable future.

With this in mind, now may be a good time to jump onto the property ladder and take advantage of this low rate environment. Alternatively, if you already have a property, now could be a good time to review your current home loan and check to make sure you are still in the right product for your needs.  

If you want to learn more about your home loan options, call us on 9432 6070 or click on the 'contact us' tab at the top of this page.

Posted in: Interest rates

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