Home Loans News: 03 Feb 2010
Homeowners may be welcoming the RBA's decision to keep interest rates on hold, but experts warn it will not be long before the central bank deals more mortgage pain...
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There was lots of egg on lots of faces in the nation's trading rooms, as most analysts were certain the official cash rate would rise to 4 per cent.
One reason homeowners were given a stay of execution, the RBA says, is because they have already been feeling the pain of higher interest rates, thanks to commercial lenders lifting their rates by more than the Reserve.
Interest rate strategist at JP Morgan, Sally Auld, says the decision to keep the official rate at 3.75 per cent has come out of the blue to most economists who had been expecting a 25 basis points rise.
But she says the RBA has warned interest rates are likely to continue moving up over time.
"[The RBA] pretty much continued to say that there will be further adjustments to the cash rate and that's in line with the more optimistic view they have on the Australian economy," she said.
Macquarie Research economist Ben Dinte expects a 25 basis point increase in March.
"But suggestions of a 5 per cent cash rate by the end of the year do appear to be overdone," he said.
The National Australia Bank made a commitment on the weekend not to raise its standard mortgage rates by more than the official increase this month.
The other major banks said after the RBA's announcement that they currently have no plans to change their mortgage rates.
The RBA's decision may be a relief for borrowers, but it surprised investors and caused a plunge in the Australian dollar.
Business borrowers
Influencing the RBA's decision were threats to growth, like China's attempts to slow its economy, foreign banks that are still carrying problems, and rising concerns about debt-laden countries.
The RBA says Australia's economy is stronger than expected, but businesses are borrowing less and finding it harder to borrow.
"It provides a timely breather for business borrowers who have in the words of the Reserve Bank already felt the impact of higher interest rates," the Australian Chamber of Commerce and Industry's Peter Anderson said.
Higher interest rates were to blame for a dive in business confidence last month to a six-month low.
SOURCE: ABC News
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