Interest Rate Lifeline Seen As Too Early
In today’s economy interest rates affect us because of their economic, social and political impact. As a result in the lead-up to Reserve Bank meetings speculation has become a ritual. The conversation in financial circles on how rates might move has all sorts of opinions jostling for attention. Trying to predict just who will be in the winner’s circle and who will not?
Yesterday’s decision not to move rates may not have been such a surprise if the market conversation was slightly less restive.
The Reserve Bank apparently sees local conditions as on course. They seem to be feeling comfortable about the waters around us and so determined that it was not time to throw a lifeline by way of a rate reduction.
One reason is the possibility that if a large percentage of any rate cut was to be past on by the major banks, suggestions that real estate markets would be fired up may not have been seen as desirable.
Putting too much money into the market now, alongside the still robust mining boom may have created price pressures. Recent strong employment advertising numbers may have further encouraged the Bank’s caution.
If consumers see this hold on rates as a deserved endorsement of local financial conditions then that’s a positive. Inflation is not a worry and it appears that the RBA may not have wanted to see more money in the local economy. Still with future cuts a possibility, these might be best saved in case external pressures re-build and if the banks move to increase rates anyway the RBA would have the ability to help next time around.