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Cash rate decision sign of improving economic conditions

Staff Reporter 3 minute read

The RBA will take the time to monitor the effects of existing monetary and fiscal policies before making any further rate movements, it revealed yesterday.

The official cash rate was left on hold at its record level of 3 per cent following the meeting of the RBA Board, with the RBA governor Glenn Stevens remarking that the effect of significant policies still needed to be observed.

“Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards and business loan rates are below average, reducing debt-servicing burdens considerably,” he said.

“Much of the effect of these changes is yet to be observed. The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead.”

AMP economist Shane Oliver said the decision came as no surprise and was a vote of confidence in the Australian economy.

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“Quite clearly the slowdown in the pace of interest rates cuts this year and the RBA’s decision to leave rates on hold this month indicate that it has moved on from 'all hands on deck' to head of a recessionary abyss to 'just fine tuning' the economy.

“As such it is a sign of improving confidence in the economic outlook on the part of the RBA,” he said.

The decision whether the RBA should cut or leave the cash rate unchanged split the broker industry.

A Mortgage Business straw poll conducted last week showed that 47.8 per cent of brokers expected the cash rate to hold steady this month. This compared to the 48.7 that expected a rate cut and 3.5 per cent who did not know.

Ann Folbigg, director of Mortgage Force, said the RBA’s decision was “prudent” in light of the “unchartered waters” it was currently swept up in.

“I’m sure the RBA wants to keep some room up its sleeve,” she said. “I do think there’s more [cuts] to come, perhaps a couple of 25 basis point reductions.”

Jeannette Middlemist of Rockfeather Finance said the pause should bring some confidence into the market.

“My gut feeling is that right now it’s a great time to buy, it’s just confidence that’s holding people back. So this month’s decision should work to filter some confidence back through the market,” she said.

With rates failing to fall any lower, Ms Middlemist said she also expected more borrowers looking to lock in fixed rates.

 

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