Interest rates remain on hold

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The news will come as a relief to mortgage holders, as economists had warned that recent unexpectedly high inflation figures could have led the RBA to hike the cash rate.

Fuelled by the mining boom, the consumer price index (CPI) rose by 0.9% during the June quarter, but commentators have suggested that the RBA’s decision makers took softness in the economy’s other sectors into account when making their decision to hold fire.

“The Reserve Bank of Australia has accurately assessed the Australian economy, including the property market, and left rates on hold,” said Real Estate Institute of (Australia) REIA acting president Pamela Bennett.

“The RBA has assessed that inflation is within its target zone, which is a relief for home buyers. However, it is concerning that, despite the state of housing affordability in Australia, some commentators were suggesting an increase in the cash rate.”
Housing Industry Association chief economist Harley Dale added that, in times of economic uncertainty the normal rules shouldn’t apply, and that the RBA should continue to keep rates on hold throughout the year.

“With fragile business and consumer confidence, the damage that could be wrought to the economy by lifting interest rates far outweighs any supposed risk of holding fire," he said, adding that – even if rates stay where they are – 2011/12 could be the weakest period for new home building in the last fifteen years.

"We are seeing persistent weakness in the crucial new home building sector and indeed the situation is deteriorating," said Dale.

And, while mortgage holders can breathe a sigh of relief for the time being, Mortgage Choice spokesperson Kristy Sheppard warns that now is the time to budget for likely interest rate rises this year.

"The official interest rate has remained steady for nine consecutive months now, a situation unseen for four years. How much longer this can last is anyone's guess but it is likely inflationary pressures will soon push the Reserve Bank into action, very possibly before the end of the year," she said.

"Our message for those repaying debt at a variable interest rate is to celebrate today's cash rate outcome while taking a good look at your loan's financial buffer."

The next RBA interest decision will be made on 6 September.

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