Interest rates on hold for sixth month in a row.

Interest rates on hold for sixth month in a row.

Posted on Tuesday, February 04 2014 at 2:40 PM

The Reserve Bank of Australia (RBA) has announced it’s maintaining the 2.5 per cent cash rate, reflecting the longest period of interest rate stability in seven years.

to the Reserve Bank Governor, Glenn Stevens, the RBA adopted a
steady-as-she-goes approach at its first meeting of 2014.

“Looking ahead, the Bank expects growth to remain below trend
for a time yet and unemployment to rise further before it peaks.”

Stevens says the
outlook is for stronger growth beyond the short term, supported by continuing
low interest and exchange rates.

“Inflation is
expected to be somewhat higher than forecast three months ago, but still
consistent with the two per cent to three per cent target over the next two

Mark De Martino, a director at mortgage broker Loan
Market, says the decision to leave rates steady for so long has helped
encourage participants back into the market.

“Homeowners and buyers of this generation haven’t
likely seen a period of interest rates this low for this long. It’s been a very
unique time period.”

De Martino believes it’s unclear if the next rate
movement would be up or down.

“For five consecutive meetings the RBA has made the
right call by watching past rate cuts bring confidence back into the market.

“As inflation and unemployment numbers continue to
make cases for rate movements in either direction, it’s not easy to predict
where rates may head next.”

Jessica Darnbrough, a
spokesperson for mortgage broker Mortgage Choice, says the decision was
unsurprising given the recent strength of Australia’s 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 per cent to sit right in the middle of the
RBA’s target band range.”

Darnbrough believes the
jump in inflation during the December 2013 quarter will reduce the likelihood
of a future rate cut.

She says there’s more confidence in the Australian
economy as a direct result of the RBA’s treatment of interest rates.

“According to the latest Westpac Melbourne Institute of Consumer
Sentiment Index,
Australians are relatively optimistic about the

“There is evidence that both house prices and housing
activity are responding to well the low interest rate environment and this is
no doubt having a positive impact on confidence.”

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