RBA Opts to Keep Rates on Hold

Posted on October 2nd, 2013 · Posted in News

The RBA has opted to keep the cash rate at 2.5% following its October meeting.  The move is largely in line with expectations, as rising house prices make the RBA reluctant to cut rates further, according to HSBC chief economist Paul Bloxham.

Mr Bloxham said while rising housing prices are a necessary part of the re-balancing of growth that the RBA hopes will occur, they’ll be worried if they accelerate too much.  The central bank has steadily reduced the cash rate since early November 2010 when it was 4.75%.  Economists believe the bank will wait to find out what has happened to inflation in the September quarter as well as getting a further reading on unemployment before deciding whether rates need to come down further before Christmas.

The Reserve Bank board will also consider the effect its rate cuts are having on property markets, particularly in Sydney and Perth. Although it is likely to share the government’s view that higher prices will support much-needed growth in housing construction, it is also aware that low interest rates can spark excessive house price growth despite subdued economic conditions.  Lenders are continuing to shake up the home loan market by competing to cut rates.  Fixed rate reductions can be an indicator that the cash rate will follow so this could be a sign of another rate drop on Melbourne Cup next month.

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Original Story Source: news.com.au