Interest rates forecast to remain on hold

Interest rates forecast to remain on hold

Business and home owners can breathe a sigh of relief with the Reserve Bank expected to once again leave interest rates on hold at its next meeting on Melbourne Cup Day.

That is the view of rate comparison website RateCity, which said that 21 of the 23 leading economic indicators it has observed suggest that the RBA will keep rates at 1.50 per cent, unchanged for over a year.

The RBA last raised the cash rate in November 2010, and RateCity money editor Sally Tindall believes that this trend is likely to continue.

“It’s incredible to think there is now a large number of first home buyers who’ve never experienced a rate hike. Seven years is a long time between increases,” Ms Tindall said.

“However, when the RBA meets on Tuesday, there is currently no strong case to move official interest rates.

“RateCity’s analysis of official data shows there has been little change in GDP, unemployment, construction, auction clearance rates and retail sales figures.”

Ms Tindall, however, does not believe that the RBA is in any position to reduce rates, despite stagnation in some growth indicators.

“Lower-than-expected inflation figures and wage growth stalling at just 1.9 per cent provide an argument for the Reserve to cut rates, but that’s unlikely.

“The RBA will also be concerned that Australia’s household debt-to-income level increased from 190.0 per cent to a record 193.7 per cent in the last quarter — a worrying trend that leaves them in a difficult position.”

Ms Tindall went on to say that the RBA’s “hands are tied” and cannot reduce rates until there’s an indication of wage growth and “broader” strengthening of the economy.

“If they [RBA] hike rates, they will risk sending thousands of Australians into financial hardship,” the money editor said. “Conversely, if they lower rates, it will encourage others to take on more debt.”

The RBA is set to make its interest rate announcement on Tuesday, 7 November.

Interest rates forecast to remain on hold
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