Mortgage holders across the country breathed a collective sigh of relief on Tuesday, as the Reserve Bank kept interest rates
steady for the third straight month. The decision not to raise rates was widely expected – but just how long can borrowers breath easy before the next hike is delivered?
The official cash rate now remains unchanged at 4.5%. Provided that the banks play ball, this means that the average mortgage interest rate will stay stable at around 7-7.5%.
Between October 2009 and May this year, the RBA delivered six consecutive 0.25% rate increases, pushing the cash rate up from 3%. But Glenn Stevens, Governor for Monetary Policy Decision, and the RBA board abruptly ceased that course of action in June, with Stevens pointing to the shaky status of the global economy as one of the key drivers.
“With growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate,” he said in a media statement following the August rate decision.
But where to from here? Are rates expected to rise again before the end of the year, or can borrowers look forward to a steady, hike-free journey towards Christmas?
Tuesday’s decision follows weaker-than-expected quarterly inflation data, which was released at the end of July. It revealed that the consumer price index (CPI), a broad gauge of inflation in the economy, increased by just 0.6% in the June quarter, almost half of the 1% increase that was predicted.
Following this release a number of economists began scaling back their forecasts of rate movements to come. Previously, at least one or two more 0.25% rate rises were anticipated before years end. Now, many economists are speculating that we won’t see another interest rate increase until November – or possibly until 2011.
The RBA’s decision will be largely influenced by inflation data, and Australia’s strong labour market (the current unemployment rate is just 5.1%) may drive inflation up in the next few months.
If this happens, “it would leave the door open for another upward nudge to interest rates before the close of the year,” says Matthew Circosta, an economist at Moody’s Analytics.
If not, then mortgage holders rejoice: we may just be gifted a further six months of stable interest rates yet.
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