Rates Held in Check to Start 2013

The Reserve Bank of Australia (RBA) will continue to apply a wait-and-see strategy with the cash rate after leaving rates unchanged at its first meeting of 2013, says leading mortgage broker Loan Market.

Loan Market Corporate Spokesman Paul Smith said it was no surprise today to see the RBA maintain the cash rate at 3 per cent with most economic indicators within targeted ranges after cutting rates 25 basis points at its last meeting in December.

Mr Smith said the RBA was comfortable with the rate of inflation in the country and that positive news from China, Europe and the United States was easing concerns of the domestic impact of overseas events in Australia.

“The RBA’s mandate is to maintain balance in the economy and that’s exactly what they’re doing this month. There’s certainly evidence that the housing industry could use some help, but four rate cuts in the last year did not ease concerns for this sector and I feel other forms of action may be needed,” Mr Smith said.

Mr Smith said that although the RBA cash rate was held steady this month, there remains a chance lenders will begin to move their interest rates independent of the RBA.

“With the cost of funds pressure easing for many lenders, there’s an opportunity for them to make adjustments to their variable rates in attempts to attract new customers. The action or inaction from lenders in the following weeks could be indicative of what’s in store for interest rate movements over the next several months,” Mr Smith said.

Mr Smith said one possible caveat for a March rate cut would be the results of a full assessment of the flood damages in Queensland and if the Australian economy would need a rate cut to help particular industries affected by the late January floods.

“The late 2010 floods were devastating for many sectors and businesses, and while the RBA did not pull the trigger on the cash rate in the months following the floods there were certainly calls for support and for the RBA to stimulate spending. These latest floods could promote similar debates.”