Laura Akhurst - 15 Aug, 2014

Cash Rate May Stay on Hold For Another Year

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While the Australian economy is stable there is still uncertainty in the air. This has prompted the Reserve Bank of Australia (RBA) to consider leaving the cash rate at 2.5 percent for another 12 months.

At a recent board meeting, RBA delegates agreed that a period of stable interest was a ‘sensible course of action’. This is due to the slowing of consumer activity and resource export growth.

What the RBA have based their decision on

The Australian resource sector is expected to slow considerably over the next 12-months and to be below trend. However, it is expected to plateau and to begin picking-up after this time. This gives the RBA reason to leave the cash rate on hold until it can judge how much of an impact the resource sector has on the economy, and whether or not the resource sector is able to stabilise long-term.

In addition to this, the high Australian dollar and current monetary stimulus to encourage economic activity are other reasons that the board is looking to stay put for longer. At this stage the board wishes to continue maintaining stability rather than putting pressure on an already stretched Australian economy.

How financial experts view this decision

Financial experts suggest that by leaving interest rates on hold, Australian households will be able to manage existing debt without feeling the pressure. This will also allow them to get ahead with mortgages and to plan for their future without concern over costly mortgage increases.

Low interest rates are also said to be encouraging investors to make the most of an affordable situation and to build on their portfolios, especially as home prices are expected to rise over the coming years. In fact, according to research, many new home loans being taken out are investment based.

With interest rates anticipated to stay on hold, financial experts are hoping that this may also encourage greater consumer spending. As many householders are beginning to put the turbulent financial past of the global financial crisis (GFC) behind them and have developed better budgeting skills as a result.

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