RBA keeps interest rates on hold

Homeowners hoping for more mortgage relief were disappointed on Tuesday when the Reserve Bank of Australia held the cash rate at 3.


5 per cent after cuts in the two previous months.

The central bank had previously cut the cash rate by half a percentage point in May and a quarter of a percentage point in June, citing instability in Europe and a mixed outlook for domestic growth.

However, in a statement accompanying the decision on Tuesday, RBA governor Glenn Stevens said these concerns had eased, following more decisive action by eurozone leaders, and improved local data.

“At today’s meeting the board judged that with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate,” he said.

The RBA expected inflation to remain within its target band of two to three per cent – but Mr Stevens said growth in domestic costs would need to slow over the longer term to maintain inflation within that band.

He added that interest rates charged by banks had fallen in recent months as a result of the RBA’s recent rate cuts.

“Interest rates for borrowers have declined, to be a little below their medium-term averages,” the RBA said in a statement.

“Business credit has increased more strongly in recent months, though credit growth remains modest overall.”

Comparison site RateCity said the RBA decision meant mortgage holders should be paying an annual interest rate of less than six per cent.

“The average standard variable rate now stands at 6.39 per cent, but borrowers with a 20 percent deposit or 20 per cent-plus equity should be aiming for a rate of below six per cent,” spokeswoman Michelle Henderson said.

HSBC economist Paul Bloxham said the RBA’s statement was certainly not dovish.

“Unless events change, they won’t be rushing to alter monetary policy in the short term at least,” he said.

“They’d want to see the effect of all the easing that’s happened.”

Mr Bloxham also noted that economic growth had been stronger than indicated.

“From that, you’d have to conclude that they’re in no hurry to cut interest rates again,” he said.

CMC chief market strategist Michael McCarthy said that previous cutting action by the RBA – plus improved data – had kept the central bank’s hand steady.

“The jobs and growth data from the first quarter (of 2012) were pointing to a wait and see attitude, particularly since they’d cut twice in the last two months,” he said.

“So the decision was very much in-line with expectations.”

The building and construction industry said the decision to hold the official cash rate applies more pressure on the sector, already suffering a prolonged period of downturn.

Wilhelm Harnisch, chief executive of Master Builders Australia, said previous rate cuts were only now starting to be felt.

“With many builders in survival mode, further interest rate cuts would help boost home buyers confidence, simulate investment and alleviate cost pressures on industry,” Mr Harnisch said.

An AAP survey of 21 economists showed that all had expected the RBA to keep the cash rate steady in July.

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