The Board of the Reserve Bank of Australia (RBA), as expected, announced that official interest rates will be kept on hold at 2.5%.
Many believe that inflation has peaked. Weak wages growth and below trend economic growth should keep inflation in check and allow the RBA to maintain current interest rate settings for some time.
An upturn in growth is being experienced by our key international trading partners, thus continuing international momentum. Together with recently signed ‘free trade agreements’ with Korea and Japan, and the likelihood of one with China soon, this momentum is good for Australia.
The demand created in the housing market has shifted to driving an increase in new building approvals. Existing home prices in Australia are cooling a little from recent highs and many financial institutions are also cutting mortgage rates, which is another reason the RBA may continue to leave rates on hold.
In a recent speech the RBA Governor, Glenn Stevens, is encouraging businesses to re-position their strategies for growth. A forward-looking indicator is the growth in job advertisements, which shows that businesses are seeing improvements and looking to employ new staff.
Companies, such as Macquarie Research, have raised economic growth forecasts for 2014 and 2015. With risks reducing Macquarie sees, potentially, no cut in interest rates until 2016. Macquarie Research believes this historically low interest rate will remain in place until early 2016. This improving picture will ultimately build more confidence.