Interest rates to rise slowly

[Guest News]

The RBA board minutes from February suggest further interest rate rises are on the way, but with more pauses likely between increases.

 

In February, the Reserve's hint is to expect further rate rises, but not another string of increases in a row, such as at the end of 2009, when the bank raised interest rates for an unprecedented 3 successive months.

 

"Members expected that, if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary," the minutes noted.

 

"But they did not regard that outlook as requiring an increase at every meeting, and they saw the earlier moves to begin withdrawing monetary stimulus promptly as affording the board a degree of flexibility in its subsequent decisions.

 

"This allowed the possibility of waiting to receive some more information on how the economy was responding to the monetary tightening that had already occurred. Such a course would also allow time to monitor events overseas."

 

Stephen Walters, an economist at JP Morgan, says the minutes even raise the possibility that the Reserve Bank might not raise rates again for several months.

 

"The main message today is that the RBA is in no rush to hike again. Further hikes are coming, that remains clear, but the risk now is that the pause the RBA has embarked on could be longer than we currently expect," he wrote in a note analysing the minutes.

 

"We are sticking with our call for the next hike to come in April but, on today's evidence, the next hike even could come as late as mid-year."

 

Some of the economic information released in December, January and early February had been mixed, which prompted board members to hold-off on a rate rise until they could see if there is a softening trend developing in the data, or if the declines were one-off monthly falls.

 

"The labour market had strengthened materially but, on the other hand, reports about household spending in December and January had been quite mixed," explained the board minutes.

 

"There were some tentative signs that parts of the housing market were seeing the effect of the decline in assistance to first home-buyers and higher interest rates."

 

Knowing that traders and analysts were almost universally expecting an interest rate rise, the RBA also determined to soften the surprise of keeping rates on hold by repeating previous statements that interest rates will still need to rise further if the economy keeps improving.

 

"Members noted that many market participants expected a further increase in the cash rate at this meeting. They concluded that, on balance, the stronger case was to leave the cash rate unchanged for the time being," the minutes read.

 

"This decision would be accompanied by communication that, if economic conditions evolved broadly as expected, further adjustments to policy would probably be needed over time to ensure that inflation remained consistent with the target over the medium term."

 

However, again repeating comments made previously by RBA officials, the board members noted that independent interest rate increases by the major banks had strengthened the effect of the previous official cash rate rises.

 

The board says that means monetary policy is no longer "exceptionally accommodative" - Australian interest rates are no longer at economic 'emergency' levels.

 

"Members noted that the three increases in the cash rate late in 2009, together with the widening in the margins between the cash rate and many lending rates, had meant a material adjustment to the stance of monetary policy," the board observed.

 

"Members judged that monetary conditions were no longer exceptionally accommodative, though the structure of interest rates was still somewhat below average."

 

In plain speak, interest rates are still a bit below where they would be if the economy was back to normal, but not very far below given that banks have been adding their own rate rises to the official ones.

[Guest Bob Tonnor]

Hi all

 

Im not going to add the name of the company to this quote, it is a quote from the boss of a Credit Union and was posted in a story on the ABC website on the 24 March,

"Our business has been performing exceptionally well and we're customer-owned, so our profits are reinvested for the benefit of our customers and they don't go back to shareholders.

"On that basis, we saw an opportunity to pass the benefit back to our customers,"

Apart from the bad punctuation id say this is good news for anyone with a mortgage sourced from a credit union, this might even put pressure on the big four. For anyone with a mortgage at all i would suggest voting with your feet.

 

Bob

[Admin]

Probably right Bob. It said on the news that some of the offerings from the two home loan providers who cut rates today were up to 0.5% less than the usual suspects. There's money to be saved if people are prepared to look outside of the big four.