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Home Loan Interest Rates Likely To Stay Put For a While

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The Reserve Bank appears more downbeat on Australia’s economic growth prospects, suggesting interest rates could be on hold for even longer.

The minutes of the central bank’s June board meeting highlight the RBA’s concern about how the tough federal budget and expected falls in mining investment could impact the economy.

Although March quarter economic growth was stronger than forecast, that was mainly driven by solid mining exports which were not expected to be sustained, the minutes said.

“The expectation of substantial falls in mining investment, below-average growth of public demand and non-mining investment remaining subdued for a time implied that the pace of growth was likely to be a little below trend over the rest of this year and into the next, before gradually increasing,” the minutes said.

Economists said the RBA appeared to be less confident about Australia’s growth prospects, raising the prospect of the central bank moving even further away from hiking rates.

“At the top of the RBA’s concerns appeared to be the sharp decline in mining investment and the fiscal consolidation set to occur,” St George economist Janu Chan said.

“The range of concerns from the RBA and recent indicators suggesting a loss of momentum in the June quarter is suggesting that a rate hike is still some months off.”

The RBA has kept rates at the record low of 2.5 per cent since August.

During its June meeting it repeated its familiar line that “the current accommodative stance of policy was likely to be appropriate for some time yet”.

RBC Capital Markets head of economics Su-Lin Ong said “modestly dovish” minutes maintained the view that the RBA will sit on the interest rate sidelines for a while.

“The RBA’s long-held narrative has been for low rates to assist in supporting the rates-sensitive sectors of housing, consumption, and non-mining investment as mining-driven capital expenditure begins to drag more heavily on activity,” she said.

“In today’s minutes that confidence appeared less so.

“History tells us that during times of uncertainty, the RBA tends to sit on its hands and await further data and developments.

“This is consistent with an extended period of steady cash, which we expect will continue well into 2015 with a modest tightening cycle unlikely to begin before the June quarter.”

CommSec chief economist Craig James said the RBA had played down the recent good GDP growth figures, making it clear that rates are stuck in neutral.

“The Reserve Bank has downplayed a number of factors that alternatively could have lent support to a change in monetary policy stance,” he said.

To ensure your home loan is still competitive, contact an expert mortgage broker from Element Finance Fremantle for a free analysis.

Element Finance, Mortgage Broker for Fremantle, Joondalup & Perth
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