Interest Rates Unchanged

As expected interest rates remained unchanged for another month in Australia. This is the ninth month that rates have been kept so low. They are currently at 2.5%.

Rates have not been this low since the early 1960’s. The decision to hold on interest rates was widely expected and surprised few.

The result reported by the Reserve Bank of Australia yesterday suggests that interest rates are going nowhere anytime soon. The Reserve Bank reports while economic growth is subdued, it is slightly above where it was last year. Unemployment levels are quite high by recent standards and there is little expectation that these unemployment rates will fall sharply anytime soon. Although the Reserve Bank did mention they expected them to ease slightly during the remaining months of 2014.

Wages growth was also extremely subdued, indicating that inflation is not likely to be a key inflationary component anytime soon.

One area of note was the increase in house prices especially in capital city areas. This increase in house prices is a key indicator that house buyers are benefiting from relatively low interest rates and trying to extract higher returns from asset based sectors rather than relying on low rates of return from financial organisations.

Indications are such that interest rates are likely to be low for a forseeable period of time to come, provided inflation does not push out of its 2-3 per cent band over the medium term.