Posted on April 2, 2013 · Posted in Finance Blog

The RBA today left interest rates on hold as was expected by the vast majority of economic commentators. The decision was made noting a general improvement in global economic conditions, including a “moderate expansion” in the US economy and growth in China “stabilised at a fairly robust pace”. Commodity prices have declined, but are still at historically high levels.

In 2012 growth was noted as being “close to trend”, driven mainly by capital investment into mining projects and private consumption is showing signs of growth.
With inflation forecasts below trend and in line with the target band of 2 – 3%, the RBA notes there is still capacity to cut rates if required, although they do note that previous rate cuts appear to be having an “expansionary effect on the economy”.

When read in conjunction with recent upbeat comments by RBA Governor Stevens in parliament (22 Feb), it suggests the RBA is feeling more comfortable with the direction of the economy, although the highest likelihood of the next rate movement (as determined by the markets) still remains as another cut.

The HIA has made an interesting (but warranted) call for the Banks to cut interest rates, despite the RBA holding rates, in response to the reduction in the banks’ “cost of funds” in recent months.
You may recall some of the banks (led by ANZ) disconnected their rate increases with the RBA movements to allow them to accommodate the increase in their “cost of funds”. Will the banks cut rates independently of the RBA now that their “cost of funds” is reducing? I would suggest this is unlikely.

About the Author

Greg Samuel has worked in the finance industry for over 13 years. He has worked in Corporate, Commercial and Rural Banking and now uses his skills to help his clients as a finance consultant and broker.