RBA keeps rates on hold

RBA keeps rates on hold

Borrowers hoping for a rate cut will have to wait at least another month with the Reserve Bank of Australia keeping the official cash rate on hold at 3.5 percent at its August meeting today.

The RBA board has already slashed the cash rate by 75 basis points this year — a half-percentage reduction in May followed by a quarter-percent drop in June.

Nine finance editor Ross Greenwood said the RBA is overlooking historically low inflation and concerns about a potential rise in unemployment, which would “enhance the case for a rate cut”.

“The decision is based on a potential turn around in the economic fortunes of the US and Europe,” Greenwood said.

“It’s a long shot but it’s colouring their thinking at this time.”

A freeze on the official rate was widely tipped with an AAP survey of 15 economists published on Monday revealing just two believed the board would lower rates.

Reports that a slowdown in mining investment could signal the end of the mining boom had fuelled speculation the RBA may move on rates.  HSBC chief economist Paul Bloxham rejected the proposition.

“There is still significant support for growth to come from mining, both in the form of further investment and rising exports,” Bloxham told AAP.

While there’s no reprieve for borrowers the RBA’s decision is welcome news for banks.

“The past two rate cuts have been a blow to lenders,” said RateCity spokeswoman Michelle Hutchison.

“There is less home loan activity, low consumer confidence and more people saving their money and paying off their debts.”

Source: Ninemsn