Interest rates still on hold


Source RBA

Vesh Arumugam, Business Journalist

The Reserve Bank of Australia announced in its monthly statement on October 2 that the cash rate remains at 1.5%.

Reserve Bank Governor Dr Philip Lowe said: “The low level of interest rates is continuing to support the Australian economy.”

According to the RBA, the cash rate is the lowest since ’90s and had been unchanged for the past 25 months.

Resident real estate agent from Platinum Realty Group, Darran Deacon, said he wouldn’t like to see cash rates increasing.

“There are parts of the market under pressure and rising rates would only make things tougher,” said Deacon.

He also emphasised that people would be unhappy if banks raised their rates.

“Most of the banks seem to be moving rates up independently of the Reserve Bank anyways, and any upward movement by the Reserve Bank would likely be passed on in full,” said Deacon.

On the other hand, San Senarathne, from Commsec (a stockbroking firm operated by the Commonwealth Bank), said an increase in the rate would ensure more stable growth of the economy.

“If the interest rate is kept as low as this for a longer period more people will borrow more and spend more than the economy can actually productively generate.

“As a result of this, there will be a rise in the inflation and you will find an overstretched economy, which could lead into a financial crisis,” said Senarathne.

He also said the high cash rates can stop investors investing unnecessarily, and instead to sell and buy to what they can afford.

“More people end up borrowing more than they should actually. That’s bad for the economy.

“People who can’t afford, technically can’t get into the market,” said Senarathne.

However, a new home buyer in Currambine, Ameetha Alagan said the low cash rate helped her to buy a new home last month.

She said: “As a home buyer, the banks would be willing to lend more to me in a lower interest rate.

“Lowering/maintaining the cash rate enables us to save money when possible without having to put everything for repayments.”

She said the unchanged rate would result in more disposable income which works in favour of boosting our economy.

“It would also encourage those renting to take the next bold step into purchasing a property.”

Feature’s editor at The Australian, Chris Kohler, in one of his business reviews wrote that the cash rate will eventually rise, but not until end of this year or the early parts of 2019.

Dr Lowe was clear the cash rate would go up, but also stated it won’t happen until the inflation rate starts to increase.

He said the forecast is for “inflation to be higher in 2019 and 2020 than it is currently”, and that the Reserve Bank board would be to work on “inflation return to target.”