Interest Rates to Rise?

June 15 AAP - Homeowners could be let off the hook from rising interest rates for an extended period if uncertainty in global financial markets prevails.

The Reserve Bank of Australia (RBA) would appear to be in no haste to lift interest rates further while the debt crisis in Europe plays out.

The minutes of the central bank's June board meeting - where it left the cash rate unchanged at 4.5 per cent - were released on Tuesday, and suggest a further rate increase would be in August at the very earliest.

"Members judged that these previous monetary actions afforded policy the flexibility to await information on how the recent market uncertainty might affect the global economy, as well as the outlook for inflation," the minutes said.

The central bank had raised the cash rate six times since October last year prior to its decision to leave policy on hold this month, including increases at the three preceding board meetings.

The minutes said global sentiment had deteriorated sharply in the period following the May board meeting as concerns about the fiscal position of Greece, Spain and Portugal intensified.
"Some governments were now in the very difficult position of having to tighten fiscal policy at a time when growth remained weak," it said.

The central bank said that while recent Australian prices and wages data suggested that the "disinflationary forces" in the economy were not quite as strong as previously expected, global events could also have implications for the inflation outlook in the medium term.

It noted that the consumer price index for the June quarter would be released in late July, which "would provide information on the extent of inflationary pressures in the economy".

Separately, RBA Deputy Governor Ric Battellino told a forum of financial executives that events in Europe were "quite worrying".

He said if a government got into trouble it had to look to other governments or the International Monetary Fund (IMF) to bail it out.

"The bigger you are, the less capacity there is for somebody else to bail you out," he said in answer to a question.

"So, developments in government debt are, I think, a worry because it's not clear to me that they can be solved any time soon and if they are going to be solved through fiscal tightening, that actually means some quite difficult periods ahead for some of these economies."

But, he said, Australia's own government debt position was "very good", plus, the country was in a part of the world which would be "least affected" by these issues.

While economists expect the CPI on July 28 will be crucial to the monetary policy outlook, global events could still stay the central bank's hand.

"In times of uncertainty, the RBA tends to sit on its hands awaiting more data and developments," said RBC Capital Markets senior economist Su-Lin Ong, who expects a rate rise in August.

"This looks especially prudent at present and rates are likely to remain on hold in July ... (but) we acknowledge that there is a risk that this pause extends beyond a couple of months, especially if the European situation deteriorates further."

Want more? We thought you might like this video.

 
 

Sign Out

Join the Conversation

Please note, LifeStyle cannot respond to all comments posted in our comments feed. If you have a comment or query you would like LifeStyle to respond to, please use our feedback form.

1 comment
Please login to comment
Posted by WachjoeReport
FIRST CHOICE FINANCE LIMITED is project funder as well as financial lender.
We have BG/SBLC, specifically for BUY/LEASE at a leasing price of 4%+2% of face value Issuance by HSBC London and many other 25 top AA rated Bank in Europe, Middle East or USA. We also secure funding.

FOR LEASING OF BG/SBLC
MINIMUM FACE VALUE OF BG/SBLC = EUR/USD 1M
LEASING FEE = 4%+2%

FOR PURCHASE OF FRESH CUT BG/SBLC
PRICE = 32%+2%
MINIMUM FACE VALUE OF BG/SBLC = EUR/USD 1M

Intermediaries/Consultants/Brokers are welcome to bring their clients and are 100% protected. In complete confidence, we will work together for the benefits of all parties involved.

Contact Email: inquiry.firstchoice@gmail.com
skype:inquiry.financedesk