Rate cuts on hold

| August 4, 2009

So now that the reserve bank has put the rate cuts on hold  and are predicting  the economy to recover . does that mean that rates would probably start to rise soon ?

The Reserve Bank’s decision today basically confirms an end to the rate cuts that carried the cash rate down from 7.25 per cent to three per cent between September last year and April this year.

interest rate cuts

In today’s statement, that comment is missing. The Reserve instead offers an upbeat assessment of a recovering economy here and overseas, says inflation is still not a threat, and concludes that "the present accommodative setting of monetary policy is appropriate given the economy’s circumstances."

The change in language reflects a subtle shift. The Reserve is still "on hold": there is nothing in what it says to warrant concerns that the cash rate is in imminent danger of being lifted.

The cash rate remains at its near 50-year low of 3 per centafter the central bank’s monthly board meeting. The outcome matched economists’ expectations, while the accompanying statement suggested to some that the RBA may sit tight for months to come.

Recent economic figures have mostly delivered positive surprises for analysts. While retail sales data for June out today shrank 1.4 per cent when a 0.5 per cent expansion had been expected, turnover for the entire June quarter showed a better-than-tipped 2 per cent expansion. That increase alone may add 0.4 percentage points to the overall June quarter growth, economists estimate.

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Category: Australia, bank rates, cash rate, home rates, loan rate, Mortgage rates, New zealand, rates, Real Estate

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