As winter moves in and Australian’s start to layer their clothing to battle the cold, the chill has cooled inflation. This has eased concern over rising inflation and the Reserve Bank of Australia has put a freeze on the official cash rate for another month.
The official cash rate is on hold at 2.5 percent. This month’s decision was based on a weaker than expected rise in consumer pricing over the first quarter of 2014. This, in turn, has resulted in a sharp fall of the Australian dollar.
Inflation forecasts in consumer pricing jumped during the last quarter of 2013. This surprised many. However, the latest Australian Bureau of Statistics (ABS) figures have come in lower than expected. This has resulted in the RBA leaving the official cash rate on hold.
Economists are suggesting that the chill surrounding inflation is likely to freeze the cash rate over winter and well into spring. However, if inflation thaws out sooner and looks to be on the move upwards, then an early cash rate rise is highly likely. Though many economists predict that this move by the RBA could potential threaten export as the Australian dollar would rise.
Last month, the Australian dollar fell in value but the effects of its decline are waning and becoming less intense. This is comforting say economists, as the RBA realise that inflation pressure is not as severe as first thought.
Inflation for the last quarter rose by 0.5 percent (trimmed mean) and 0.6 percent (weighted mean) this took the annual rate to 2.6 and 2.7 respectively. The RBA typically watch measures that contribute to underlying inflation closely.
Strongest price rises last quarter were associated with education (secondary and tertiary), pharmaceuticals, petrol and cigarettes. Signs of movement in the labour market are also being witnessed. This means that unemployment could peak in 2014, rather than in 2015 as originally anticipated.
Based on this, and other inflation data, economists are suggesting that there is a 56 percent chance that the official cash rate will remain on hold until later in the year, when it is expected to rise by 25-basis-points to 2.75 percent.
For home loan holders and investors, this could mean that now is a good time to consider refinancing and getting a lower interest rate, or fixing your home loan interest rate. This move could save you thousands in interest payments over the term of your loan, and it could reduce your monthly mortgage commitments.
Want to know more about refinancing or fixed rate home loans? Then talk to eChoice and discuss your options TODAY!
Written by eChoice