The Reserve Bank of Australia has left interest rates on hold at 4.5%, defying widespread predictions of a rise.
Following the RBA’s meeting today, the central bank’s governor Glenn Stevens said that the current interest rate was “appropriate for the time being.”
By confounding predictions of a 25 basis point rise in interest rates, the RBA will have pleasantly surprised many start-up businesses. Yesterday, Australia’s retailing body warned that a rate rise could hit consumer confidence and result in a disappointing trading period in the lead-up to Christmas.
In a statement following the decision, Stevens noted a “degree of uncertainty” in the financial markets, although business investment in Australia has been “improving.”
Adding that inflation has “moderated from the excessive pace of 2008”, Stevens said: “The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade.”
“The Board regards this as appropriate for the time being. If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”
However, there was an immediate warning that small businesses should not expect an indefinite stay of execution. Financial comparison site RateCity pointed out that most of the major banks are unlikely to leave their rates on hold.
Damian Smith, RateCity’s CEO, says: “The majority of the major lenders and many market economists are all pointing towards a likely lift to interest rates, whether the Reserve Bank moves the official cash rate or leaves it unchanged. So borrowers need to be prepared for the next wave of rate rises and take advantage of this pause to get ahead of their mortgage.”
“That means, for example, paying off credit card debt, and making sure you’ve paid as much as possible onto your home loan before rates go up.”
“We’ll be watching lenders closely in the coming weeks to help borrowers know who’s moving their rates and how to get some of the best deals in town. Borrowers should keep a close eye on things like package discounts, to see if their lender moves rates ‘by stealth.’”