Australian Property News

Interest rates on hold

Posted on Tuesday, February 02 2010 at 4:34 PM

The Reserve Bank of Australia (RBA) has surprised economists by leaving official interest rates on hold at 3.75 per cent, partly in response to the fact lenders had already increased their interest rates by more than the central bank.

The RBA lifted official interest rates an unprecedented three months in a row late last year by a total of 0.75 percentage points. A number of major banks lifted their lending rates above and beyond those increases.

RBA Governor Glenn Stevens says the bank is waiting to see what the impact of those changes will be.

"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point," he says in a statement released in conjunction with today's rates decision.

"Since information about the early impact of those changes is still limited, the (RBA) board judged it appropriate to hold a steady setting of monetary policy for the time being."

Stevens says a strong labour market and a recovery in net worth are supporting Australian household finances, while global economic growth is expected to return close to trend in 2010 and 2011.

"Public infrastructure spending is now boosting demand, as is an upturn in housing construction," he says. "Investment in the resources sector is strong. The rate of unemployment appears to have peaked at a much lower level than earlier expected."

Real Estate Institute of South Australia chief executive Greg Troughton says the RBA has rightfully given homeowners more time to adjust to last year's three consecutive interest rate rises.

"Considering we're still recovering from the impacts of the global financial downturn, it's pleasing to see the RBA is pacing this recovery period and giving households breathing space during this fragile time," Troughton says.

"This move will be welcomed by many mortgage holders and prospective homebuyers and we trust that lenders will also follow suit to aid this recovery."

Despite today's hold on interest rates, Stevens says the RBA believes rates will have to rise over time to keep inflation within its target range.

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