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Interest rates kept on hold

Reported by ninemsn staff
Tuesday, April 2, 2013
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The Reserve Bank has kept interest rates on hold at three percent for the fifth consecutive month in a move sure to fuel speculation rates could soon be on the rise again.

Positive economic data released in recent weeks has given the RBA board another reason to keep rates steady at record lows.

Stronger than expected jobs data for February and a boost in consumer sentiment appears to have outweighed concerns about the shaky Eurozone amid the Cyprus bailout crisis.

Data out today also revealed the housing market is heating up again with a 2.8 percent rise in capital city house prices.

But some economic observers believe the current easing cycle – which has seen 175 basis points shaved off the official cash rate since November 2011 – could be drawing to a close.

Economists remain split as to whether 2013 will bring a final spate of rate cuts, a continuation of the five-month holding pattern or a return to rate rises.

"We haven't seen the Reserve Bank lower the cash rate for five months, which could signal the end of the interest rate downward cycle," RateCity CEO Alex Parsons said.

"While we are still seeing some fixed home loan rates falling, their descent has slowed significantly, which could also be a sign of lenders expecting funding pressure to stabilise or lift in the near future."

The RBA board last cut the official cash rate to its current level in December 2012.

Parsons said the average borrower with a $300,000 mortgage is now paying $266 less in monthly repayments than in November 2011 when rates began to fall.

HSBC chief economist Paul Bloxham, a member of the Australian National University's "shadow board", said a rise to the cash rate could happen as early as the fourth quarter.

"The balance of risks implies that rates should rise within the next 12 months to return monetary policy to a neutral stance," Bloxham told the Sydney Morning Herald.

But the big banks including ANZ and NAB believe the cash rate will continue to fall by as much as 50 basis points to 2.5 percent by the end of the year.

A survey of 13 economists conducted by AAP before today’s decision found seven believed the RBA would cut rates one more time to 2.75 percent in May or June this year.

Nine finance editor Ross Greenwood said the clues to the RBA's future moves could be in the detail of Glenn Stevens' decision.

Mr Stevens noted that the RBA retains an "accomodative" stance on rates that factors in "would afford scope to ease policy further" - signs Greenwood says point to more rate cuts to come.

"Looking at the language the Reserve Bank still has a bias to cut interest rates," Greenwood said.

"I would expect interest rate cuts to continue with the market suggesting one more cut in the next few months."

For the RBA board's full rates decision, click here.

20/08/2014 14:51Sydney, Australia. 20 August,2014
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