Rates on hold

Australia’s borrowers have been given a reprieve, with the Reserve Bank surprising pundits by leaving interest rates on hold - for now.

And the central bank has cited excessive hikes by major banks as one of the reasons for holding back. The market had been strongly tipping a quarter-percentage point rise - and the RBA’s statement today suggests more rate rises in future.

The RBA left its key cash rate unchanged at 3.75 per cent after its monthly board meeting. The outcome snaps a run of three consecutive monthly increases that began in October, and added as much as $185 to a typical $300,000 home loan.

The dollar dived more than one US cent when the news was announced, falling to an intraday low of 88.23 US cents. Just before the announcement, it had been buying 89.24 US cents after rising from yesterday afternoon’s local close of 88.31 US cents.

Borrowing, stamp duty and repayment calculators

Even with today’s pause, though, analysts expect the central bank will soon resume its series of rate rises as the economy recovers from last year’s trough.

RBA governor Glenn Stevens cited the recent extra rate increases tacked on by commercial banks as a reason for leaving rates on hold this month.

“Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point,’’ Mr Stevens in a statement accompanying the rates decision. “Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.’‘

Read the RBA’s statement here

In December, three of the big four banks raised their variable lending rates by 35-45 basis points, more than the RBA’s 25-point increase. NAB was the only one of the big four to match the RBA’s increase.

Still, Mr Stevens made it clear that he expects further rate increases to come.

“Interest rates to most borrowers nonetheless remain lower than average,’’ he said. “If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.’‘

Australia was the only rich economy to avoid shrinking last year, with more than 135,000 jobs added in the final four months of last year. House prices - an issue that the RBA watches closely - are also accelerating, with national costs jumping 5.2 per cent in the final three months of 2009, the fastest pace since 2003.

Still, not all the readings are bullish, including today’s NAB monthly business survey which showed a drop in confidence. ANZ survey of job advertisements, out yesterday, also reported a drop last month.

Source: Sydney Morning Herald