RBA Places its Bets on 2.5%, Economy on Track

The Reserve Bank of Australia (RBA) has left the cash rate on hold for a third consecutive month as the economy continues to rebalance itself after the mining boom.

Loan Market director, Mark De Martino said that with retail spending and the property market gaining momentum, the RBA made the right call leaving rates unchanged, which should encourage further economic growth.

“We’re finally starting to see sustained confidence return to the economy. Homeowners and buyers are reaping the rewards of record low interest rates,” Mr De Martino said.

Mr De Martino said with some fixed interest rates starting to rise, speculation that the current rate cycle had bottomed out is growing. Mr Martino suggested that it’s still too early to anticipate the next rate movement would be up.

“Most of the movement on fixed rate products has been for the longer term products, greater than three years. Most of them have moved above the five per cent mark while the shorter term products remain well below five per cent. This tells me the bank’s long-term outlook is much brighter than it was several months ago,” he said.

Mr De Martino predicted the RBA would again choose to leave rates unchanged at its December meeting. This would leave the cash rate 2.50 per cent until at least February 2014, when the RBA will hold its first meeting of the new year.

“Unless we see a massive deterioration in our economy or inflation accelerate well above its target, the RBA is going to continue with its wait-and-see approach. Hopefully low interest rates keep the Australian economy growing at a sustainable pace.”

Mr De Martino said the outlook for the property sector was strong leading into the summer season but that building construction and first home buyers were two problematic areas.

“First home buyers are nearly non-existent despite the surge of sales we’ve seen this summer. Perhaps state-based governments need to revisit the grants that help them purchase.

With more than 50 per cent of Australians now using a mortgage broker, Mr De Martino said it was the perfect time to visit one if you are considering purchasing a home or refinancing an existing property.

“There’s a reason more than half of all home loans are now written by a mortgage broker - they can show you how to maximise your savings and take advantage of market conditions. If you’re considering fixing your interest rate, a mortgage broker can shop around from multiple lenders and present you with the most competitive offers.