Interest rates set for freeze

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The RBA is indicating that it intends to hold interest rates at their current level until later this year, in a move designed to protect economic stability.

The freeze was hinted at by RBA Deputy Governor Ric Battelino in a speech earlier this week, as well as the minutes of the RBA’s last Monetary Policy Committee meeting. Battelino commented that while there are "grounds for confidence that the economic and financial structure that has evolved in Australia is sustainable" and the current level of household debt in particular can be supported. However, he added that the higher the level of household debt, the more vulnerable households are to shocks that might affect the economy – especially mortgage holders in areas where there have been sharp price rises and first-time buyers.

The minutes of the central bank's meeting, meanwhile, suggest that while the international environment facing the Australian economy had become more uncertain – especially in terms of the European debt crisis  – the medium-term outlook remained positive. Additionally, while data for prices and wages suggested that the disinflationary forces in the economy were not quite as strong as previously expected, global events could also have implications for the inflation outlook in the medium term. It added that the CPI data for the June quarter, which would be released in late July, would provide information on the extent of inflationary pressures in the economy.

The committee added that it believed the current rate affords the flexibility to await information on how the recent market uncertainty might affect the global economy, as well as news about the outlook for inflation: again suggesting a freeze in interest rates until August at the very earliest.

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