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In its first meeting of the year, the Reserve Bank has kept interest rates on hold today. Many economists had bet the Reserve Bank would cut rates by 0.25 per cent due to worries about the economic situation in Europe. However, rates will remain at 4.25 per cent. The RBA cut the official cash rate on 6 December by 0.25 per cent, bringing the official rate down to 4.25 per cent. The central bank shocked the nation in November, when it reduced the cash rate from 4.75 per cent to 4.5 per cent on Melbourne Cup Day - the first reduction in more than two and a half years and a stark contrast to 2010's Melbourne Cup Day rate rise upset. Benign inflationary growth, slow employment growth and poor consumer confidence all contributed to the November rate cut and with similar conditions persisting into December, many economists were not surprised that the RBA moved downward once again. "The rate cut should not come as a surprise from a housing market perspective, considering that the soft market conditions that first became evident in June of last year have created no inflationary pressures and have persisted," commented RP Data's Cameron Kusher. |
"In fact, capital city home values are down four per cent from their December 2010 peak and rental rates have increased by just 4.6 per cent over the 12 months to September 2011." In addition to flagging the soft property market conditions, the RBA noted in its monetary policy statement that growth in the global economy has moderated in 2011. Europe's sovereign debt and banking problems are also "likely to weigh on economic activity there over the period ahead", the statement said. With more difficult financial market conditions ahead and both businesses and households remaining cautious, "the likelihood of a further material slowing in global growth has increased", the RBA said. A cut could be delayed for a month or two - or not happen at all - if the local economy holds up. Alternatively, an economic meltdown in the eurozone could see an out-of-cycle emergency reduction. |
