RBA leaves mortgage interest rates unchanged

As Mr Mortgage predicted earlier, the official cash rate has been left unchanged, with the decision announced moments ago.

The board of the Reserve Bank of Australia met today,and by this afternoon decided on, amongst other matters, the official cash rate was in fact high enough on balance.

As Australia’s central bank its function is control money supply and policies that regulate the economy to ensure that Australians enjoy full employment and low inflation, as much as is possible that is.

But the question still remains: has the RBA has raised official interest rates one time too many, when it raised them last month? It has raised the interest rate six times over the last six months, taking the official cash rate from 3 per cent to 4.5 per cent, and setting a pattern of rises to curb over spending in a hot home market.

In my opinion it raised rates one time too many with last month’s .25% rate increase.

Why do I believe that rates are too high?

Retail spending and new home spending were down, and the average price of homes has been going south some sometime now, which ought to be good for home buyers. Both areas are fragile and both can influence unemployment rates. Now it not the time to pushing the envelop on interest rates.

If it did raise rates too quickly, it would not be the first time. The RBA got ahead of itself a few years ago and had to lower rates as a consequence. It may happen again.

1. The austerity measures in Europe, especially Greece, Briton, Spain and Portugal were on the drawing board and difficult to push through. Whilst they had not be ratified, they were on the cards, and so was the riots in Greece.
2. The Icelandic Volcanic ash problem will still disrupt air travel for some time to come. The last time it erupted it was active for a year.
3. The BP Gulf oil spill, has now become the US worst environment accident of all time, and it will be August before the oil will be fully diverted [if seasonal storms don't disrupt the drilling of a relief well.] That is, it not a guaranteed thing, and the effects will be felt for many years to come. Yes earlier predictions were more rosy, but this catastrophe may have wide reaching implications, including the US having to have an austerity package to curb its spending, which was out of control under the Republicans [yes the same ones that "believe" in small Government,were the biggest spenders ever.
4. The outcomes of the two wars, Iraq and Afghanistan,are still in the balance and the US can't afford to there anymore.

These are all events that will affect the Australian Economy going forward and should have been factored in by the  Reserve Bank board before the rate increase shock of last month.

Just as we have a "two speed economy" the domestic and the export sectors, we also have people who want interest rates to be high. They are the self supported retirees. On the other side of the ledger the sudden collapse of the value of the Australian dollar is good news for exporters. and bad news for importers [mainly retailers and suppliers], so a high interest rate would mean slowing the retreat of the Australian Dollar against the Greenback.

Also, long suffering pensioners with money in safe fixed term deposits can get a better yield on their deposits.

With house prices falling and house sales falling and real estate agents stock sticking, and with retailers struggling to get their doors open, we don’t need to have another mortgage rate increase.

Because mortgage belt homeowners can’t afford it and home buyers won’t buy homes if interest rates rise again any time soon.

Author: Mr Mortgage