No Rush to Raise Interest Rates

The Reserve Bank of Australia (RBA) has announced interest rates will remain at 4.75 per cent for the eighth consecutive month.

Loan Market corporate spokesman Paul Smith said the RBA maintaining the cash rate was the right call given the direction the economy is heading.

The eight month pause in interest rates have given much needed reprieve to households dealing with increased costs of living, Mr Smith said. There remains a strong case for interest rates to remain on hold for the remainder of the year.

Mr Smith said figures released by the Australian Bureau of Statistics (ABS) yesterday showing a 7.9 per cent drop in residential approvals in May were inductive of the fragile state of the economy.

Obviously the Queensland floods had a devastating effect on all sectors and there impact is still being felt. The RBA has made the right call in keep rates intact while sectors such as retail and real estate recover from near catastrophic dips, Mr Smith said.

Mr Smith said interest rates should remain intact for the remainder of the year while consumer confidence slowly returns.

But he said there remained continued speculation that the RBA was looking to increase the cash rate in the latter half of 2011 in response to inflationary pressures.

Even with very sluggish numbers in some sectors the RBA has been firm on it’s stance to combat rising inflation numbers, Mr Smith said. However many analysts have forecasted inflationary pressures to ease off without any short-term rate rises.

Right now people are very cautious about spending but the RBA can go a long way in resorting confidence by keeping rates down.

Loan Market