Interest Rate Hold A Good Move

By Sam White, Executive Chairman Loan Market Group

Yesterday we saw the RBA leave rates on hold despite the majority of economists predicting a fourth consecutive rise. This leaves the official cash rate at 3.75 per cent.

Many mortgage holders will be happy with the decision after the record three rate rises in a row at the end of 2009, and indeed it is those rises that have seen interest rates remain steady this month.

The RBA is rightly assessing the impact of that historical move before making any further decisions on how to manage the changing economic landscape of 2010, but despite this pause home owners shouldn't get too comfortable with the current interest rate levels.

Borrowers should instead be prepared for at least a further 0.5 per cent in interest rate rises throughout the year from the RBA.

Economists are divided as to thepath the banks themselves will take in 2010: raise rates more than the OCR, keep pace, or even potentially undercut the RBA to create some much-needed positive PR and compete with the resurgent smaller' lenders.

For those who are concerned, it's important to keep in mind that most economists are confident the official cash rate will not go above 5 per cent this year. The economy is in gradual recovery and the rate of unemployment is now likely to peak at a lower level than initially thought.

Signs point to a steady 2010 overall, though economists are not ruling out a rate rise in March.