Interest Rates to Remain on Hold

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Nearly all economists seem to agree that interest rates will be put on hold for at least a couple of months following lower than expected inflation figures for the December quarter last year:

The Reserve Bank to Stay Put On Rates for Now. 

That’s good. My own take is that they were a little overzealous in raising them 4 times last year, but some economists are still factoring in further rate rises from May. The December CPI figures showed a 0.4% rise, which is well below the annualised target band. The annual inflation figure to the September quarter was 2.7% (within the target band) and 2.4% to December and this was despite huge stimulus money being spent within these time periods. Sectors such as manufacturing and retail have been doing it very tough over recent years and seem to be being punished for the success of the resources sector. Another concern is that business lending has been falling and we have noticed the extraordinarily tight credit conditions to businesses have not abated one little bit. Development Finance is still tough, although banks are showing some mild interest in dipping their toes in again into this market. Interestingly, there seems to be some softening in credit policies on housing loans, with a number of higher LVR products creeping into the market, probably as a result of the government’s backing of smaller lenders and the resulting increase in competitive pressures in this space. It will be interesting to see how this plays out over the year, but it looks like the RBA will wait and see for the next couple of months.


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