Reserve Bank Delays Interest Rate Rise, Offers Hope to Homeowners

The Reserve Bank of Australia has delayed an expected interest rate rise until next year, providing a welcome Christmas present to homeowners. In its quarterly statement on monetary policy, the bank acknowledged that inflationary pressures are increasing, but confirmed that the recent hike in rates has done its job in cooling the housing market. The bank warned, however, that interest rates will eventually need to rise to keep pace with economic growth. Meanwhile, the Reserve expects the current account deficit to remain high, at six per cent of GDP, due to strong demand for Australia's exports, particularly in the oil and commodity sectors.

Key Takeaways:

• The Reserve Bank has effectively delayed an interest rate rise until next year, citing the recent hike in rates that took pressure out of the housing market.
• Inflationary pressures are increasing, but the bank warns that interest rates will eventually need to rise to keep pace with economic growth.
• The Reserve expects the current account deficit to remain high, at six per cent of GDP, due to strong demand for Australia's exports.
• The bank notes that the recent drop in oil prices has provided some relief for the petrol market, which had previously dampened consumption.
• The Reserve is monitoring the post-drought recovery for farmers, warning that prices and volumes are likely to drop as the season eases.

Statistics:

• The Reserve Bank expects the current account deficit to remain at six per cent of GDP (Asia Pulse).
• The bank notes that inflation is within the target band of two per cent to three per cent (Treasurer Peter Costello).
• The recent drop in oil prices has provided some relief for the petrol market, with prices falling slightly in the past week (Treasurer Peter Costello).
• The Reserve Bank has noted that the housing market adjustment has been orderly, with little risk of an uncomfortably sharp decline in house prices, though there is little risk of a renewed upsurge at present.

Sources:

• Reserve Bank of Australia, Quarterly Statement on Monetary Policy (Asia Pulse)
• Treasurer Peter Costello, comments to reporters (Asia Pulse)