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RBA interest rate announcement

The RBA has today opted to keep the official cash rate on hold at 2.5 per cent.

This decision was widely anticipated.

The inflation reading for December was unexpectedly high and the lower Aussie dollar is now coming into play. Housing prices are also still rising – evident by another good January  and that will cause rates not to fall for the rest of 2014.

We don't expect rates to rise until at least the second half of the year given the varied performance of capital city housing markets.

While Sydney and Melbourne property markets continue to power ahead, the rest of the capitals are a bit of a mixed bag.

Brisbane is starting to show a real decent trend now, although nowhere near where Sydney and Melbourne are; Perth and Darwin are now being affected by the mining transition, and Adelaide and Hobart are a little softer.

Increased confidence and a surprising lift in inflation the chance of another rate cut in this cycle has been significantly reduced.

New research from National Australia Bank found business conditions and confidence is on the up, with conditions reaching a two-and-a-half year high last month,” she said.

“Further, consumer confidence currently remains comfortably in the zone where optimists outnumber pessimists. According to the latest Westpac-Melbourne Institute of Consumer Sentiment Index, Australians are relatively optimistic about the economy, and there is evidence that both house prices and housing activity are responding well to the low interest rate environment.

Finally, the inflation results for the December quarter were stronger than expected, with underlying inflation climbing by 0.9 per cent to sit right in the middle of the RBA’s target band range.

The cash rate has now remained steady at 2.5 per cent since August.