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Good Chance RBA Interest Rates Will Plateau Soon

At the beginning of May, the RBA raised the interest rate back to average levels even though it was in the midst of a European, and especially, Greek debt crisis. However, it looks as though home mortgage borrowers may get some financial pressure eased as Australia’s central bank has intimated they may not lift the official cash rate in the near future as previously expected.

On May 4th the RBA raised the cash rate from 4.25 per cent to 4.5 per cent, which essentially brought it back to its average level when analysed over the previous decade.

The memo from the May 4th meeting expressed the notion that, ‘members judged it prudent to undertake some further monetary policy tightening.’ This is great news for borrowers who have endured six separate cash rate rises since they began in October 2009 after the Global Financial Crisis was collectively seen as not affecting Australia as much as first anticipated.

To come to their decision in May, the RBA had to weigh up the power of the mining sector’s resource boom against decreasing retail sales and home loan approvals. The other main factor to consider was the debt troubles occurring in Europe, which the RBA felt could be cause ‘for a pause in the process of normalising interest rates.’

The RBA believes the European debt crisis, especially the situation in Greece, could actually get worse, which may put the entire global economy exactly where everyone imagined it would go when the GFC first hit. However, it was noted the crisis has yet to affect debt markets outside of Europe, with worldwide stock markets and some currencies being the only cases of slight declining of value outside the European vicinity.

The RBA said, ‘the direct impact of Greece on Australia was considered to be small,’ but with that in mind, ‘members felt that this (not raising interest rates in the near future) would leave monetary policy well placed for the present.’

The debt futures market is now anticipating there may not be another rise in the cash rate, ‘until September, or possibly November, 2010.’

After raising the interest rate in early May, the four major banks lifted their standard variable mortgage rates accordingly, which added around $50 a month to a 25 year, $300,000 mortgage.

The RBA said the reason inflation figures have increased so much recently was because of the powerful rise in the cost of services, due to the fact these areas of the Australian economy are currently stretched, with limited capacities being reached.

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