RBA LEAVES INTEREST RATES ON HOLD

By staff writers and wires
July 4, 2007

HOMEOWNERS have been spared another interest rate rise with the central bank leaving the cash rate on hold at 6.25 per cent, but analysts expect borrowing costs to keep on rising.

Indeed, the nation's households could be faced with higher interest rates later this year or next year as low unemployment puts pressure on wages and inflation.

The Reserve Bank of Australia (RBA) raised interest rates three times last year, with November's rate rise of 25 basis points taking official interest rates to a 6-year high of 6.25 per cent.

The widely expected decision today follows a central bank board meeting yesterday to consider monetary policy and precedes the next set of inflation data due later this month.

Economists' reaction: Inflation pressures 'still a concern'
Treasury analysis: Home loan burden to grow

 

Multiple rate rises

Since 2002, Australians have faced eight interest rate rises.

Another rate rise today of 25 basis points would have taken official rates to 6.5 per cent, a 10-year high.

Economists say that while no change in rates is expected at least until early next year, the Reserve Bank will be keeping an eye on price pressures.

The central bank sets interest rates to keep inflation between 2 and 3 per cent. But a plunge in the jobless rate to a three-decade low in May of 4.2 per cent could push up wages and consumer prices.

ANZ head of Australian economics Tony Pearson said that in the medium term there was still a bias towards higher rates.

"We continue to believe there will be an increase in interest rates shortly after the Federal election," he said.

Prime Minister John Howard is expected to call a federal poll in October or November.

A sharply rising global oil price is also putting pressure on petrol prices at the bowser, as well as quickly rising food costs and rent.

Bank repossessions of properties are rising around Australia, particularly in the mortgage belts of Sydney and Melbourne, as some people fall behind on mortgage repayments.

While higher income earners have been insulated from rate rises through tax cuts, lower income earners and those heavily in debt are struggling to keep up with higher living costs.

- With Nicki Bourlioufas, business editor of NEWS.com.au