27 Jul 2010

RBA leaves cash rate unchanged

Falling equity prices, softening commodities and stabilising conditions in Europe have been listed as factors affecting the Reserve Bank of Australia’s (RBA) decision to leave the cash rate unchanged for June at 4.5%.

Property owners and buyers can breathe a sigh of relief this month, with the RBA announcing today that it has decided to leave the cash rate unchanged at 4.5%. This is the first month since February 2010 where cash rates haven’t risen, indicating that the RBA has taken a ‘wait and see’ approach now that the cash rate has neutralised.

However, experts suggest homeowners and potential buyers should take advantage of the breather and try to pay down their debt. “The decision by the RBA today to leave official rates at 4.5% was no surprise as another increase may have affected the nation’s economic morale,” says Loan Market executive chairman Sam White. “I think given this latest reprieve from the RBA, the best thing to do is pay off some debt if you can.” White suggests that homeowners move high-interest-bearing debt from their credit cards to their mortgages and pay it off as fast as possible.

However, Mortgage Choice senior corporate affairs manager Kristy Sheppard cautions borrowers against breathing too easily. “No one has a grasp on when the cash rate will move again; some are saying it could be as early as next month, while others envision a steady rate until the end of next year. The focus should be whether lending institutions move rates outside the RBA cycle, as they’ve indicated is a possibility due to the continued volatility in their cost of the funds,” she says.

According to Glenn Stevens, Governor of the RBA, the decision to leave the cash rate unchanged is appropriate for the near future. “Interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago,” says Stevens. He adds that inflation appears likely in the upper half of the target zone over the next year.

Article title is copyright Your Investment Property magazine and has been republished with permission.

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