The RBA has Plenty of Room to Move

Australia’s home finance and real estate sectors anticipate a spring surge in activity despite the Reserve Bank of Australia (RBA) maintaining its wait and see approach on official interest rates, according to leading mortgage broker Loan Market.

The RBA today kept its cash rate at 3.5 per cent – a level well above many ofAustralia’s major trading partners, said Loan Market Corporate Spokesman Paul Smith.

Mr Smith said the RBA staying on the interest rate sidelines for the past three months hadn’t deterred consumers who were showing more confidence with another rate rise unlikely in the foreseeable future.

“There have been some positive signs coming from the market and the feedback we are getting from our brokers is that spring could see a surge in activity,” he said.

“Any notable lift in consumer confidence could also motivate lenders to offer some more competitive home loan deals.”

Mr Smith said the RBA still had much more room to move than most of its central bank counterparts in other developed economies.

“Our cash rate remains one of the highest among the developed nations with interest rates in more than 40 countries below that ofAustralia,” he said.

“While that is a reflection of our economy’s resilience during the global financial crisis, consumers and struggling sectors such as retail would still prefer some more rate reductions from the RBA before the end of 2012.”

Mr Smith said the RBA had acknowledged a slight improvement recently in activity in the housing sector, but there were some warning signs for the resources industry which has carried the Australian economy through the GFC.

“The RBA has noted that prices for Australian raw materials exports slid in July this year to the lowest level since 2010,” he said.

“The price of iron ore dropped to a 2 1/2-year low in August afterChina, the world’s biggest buyer, scaled back purchases. The central bank also said the commodity price index had fallen 10.8 per cent in Australian dollar terms over the past year.

“The RBA at least has some firepower in reserve to try and counter any further deterioration of the economy.”


Official Interest rates around the world *

Switzerland,Japan                                       0%

Singapore                                                  0.6%

United States                                            0.25%

Britain                                                        0.50%

Euro Area                                                  0.75%

Canada, UAE                                            1.00%

Sweden,Norway                                       1.50%

Saudi Arabia                                              2.0%

New Zealand                                              2.5%

Thailand,South Korea,Malaysia                  3.0%

Australia, Latvia, Tunisia                           3.5%

South Africa                                               5.0%

China                                                        6.0%

India,Russia,Brazil                                    8.0%

Kenya                                                     16.5%