The Board of the Reserve Bank of Australia has voted to leave the cash rate on hold at 3.75 percent at its 2-Feb-2010 meeting.
Some lenders have raised their rates higher than the cash rate in recent months prompting the Board to adopt a wait-and-see policy by not adjusting the cash rate any further. Although mortgage lending remains robust and the availability of credit to big businesses is strong, small businesses are still being hampered by a lack of credit opportunities. Raising the cash rate today may have imposed an increased burden on the small business sector.
While today’s news will be welcomed by home owners on variable rate mortgages the RBA suggested that future rate rises may occur. With unemployment seemingly peaking and household spending strong, inflationary pressures may begin to take hold later in the year. The RBA also noted that house prices have increased significantly over the past year and that further adjustments to monetary policy may need to be put in place.
While some lenders announced that they would not increase their rates unless the RBA increased the cash rate it remains to be seen whether all lenders will follow suit. Recent history has shown that lenders are willing to impose larger increases on the interest rates of their mortgage products which indicates that borrowing costs of some financial institutions may rise in the next few days.
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