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Home loan interest rates on hold

The central bank today decided to keep the official cash rate on hold as was widely anticipated by economists following the release of better than expected inflation data last week.

The Consumer Price Index (CPI) rose 3.1 per cent in the year to June quarter, slightly above the RBA's target level of 2-3 per cent.

Glenn Stevens, Reserve Bank governor said the current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade.

“With growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate,” Mr Stevens said.

This view was widely felt by economists, including Westpac senior economist Matthew Hassan, who recently told The Adviser that initial interest rate rises are clearly impacting on rate sensitive sectors like housing and consumer spending, causing the RBA to keep rates on hold.

“For now, the Bank is comfortable to assess the situation,” Mr Hassan said.

According to Mr Hassan, uncertain conditions abroad have also forced the RBA to hold rates.

“Europe, the US and China are all facing prospective slowdowns in coming months – and in financial markets – sovereign debt concerns,” Mr Hassan said.

AMP chief economist Shane Oliver said despite a similar prediction, the RBA still retains a clear tightening bias and will continue to keep inflation within target levels.

“The RBA will continue bearing down on the economy,” Mr Oliver recently told The Adviser.

Mr Oliver added that high export prices coupled with improved business investment, consumer spending and solid employment recovery will see rates reach “near top” levels of 5.5 per cent by end of 2011.

RP Data senior research analyst Tim Lawless has welcomed the RBA's decision to keep rates on hold, saying the slowdown in market conditions has called for a rate halt.

“Month to month capital gains in Australia's capital city housing markets had been trending downwards since January and slipped into the negatives with a result of -0.7 per cent in June,” Mr Lawless told The Adviser.

“The slowdown in Australia's capital city housing markets, together with a moderate CPI figure which was below market expectations, would have been an important consideration by the Bank to keep rates on hold,” he said.