Rba 'likely To Hold Back On Rates'

Rba 'likely To Hold Back On Rates'

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The RBA is unlikely to implement a one-off interest rate cut to counteract global economic uncertainty, an expert has suggested.

An expert has told consumers pondering taking out home loan deals that the Reserve Bank of Australia (RBA) is unlikely to implement an emergency interest rate cut, despite concerns over Greek sovereign debt.

Speaking to AAP, RBC Capital Markets head of Australian strategy Su-Lin Ong pointed out that the central bank does not have form for one-off base rate changes and remains keen to implement fiscal normalisation.

She advised home loans customers that changes to the bank rate had been "considered and deliberate" ever since the RBA opted to tackle inflation in the mid-1990s, with series of reductions occurring during just three periods since then.

"While the pragmatic RBA will not hesitate to change the direction of policy if needed, it does not engage in emergency-style one-off rate cuts," she commented. "In times of uncertainty, the RBA tends to sit on its hands awaiting further data and developments."

Although financial markets have priced in a 70 per cent chance of an interest rate cut before the end of 2011, uncertainty over the eurozone fiscal crisis led to diminishing expectations of a 0.25 per cent reduction this month.

In an interview with ABC Television, prime minister Julia Gillard acknowledged that some consumers had experienced a "tough" time due to the rising cost of living - although she insisted Australia remains in a strong economic position compared to other countries.

Speaking to delegates in Adelaide last week, RBA assistant governor Philip Lowe declined to set a timetable for lending rate increases, but did give some indication that interest would have to rise at some point over the coming months.

He expressed particular concerns about the impact of inflationary pressures, with a surge in demand hitting the housing and utilities sectors and thereby pushing up overall living expenses across the board.

According to Dow Jones Newswires, a survey of 20 financial institutions estimated a second-quarter core inflation rate of 0.7 per cent, with the RBA's executive board due to discuss monetary policy at a meeting next week.

While RBC Capital Markets senior economist Su-Lin Ong stood by her forecast of an August rate rise, she admitted to some doubt. Paul Bloxham of HSBC expressed similar sentiments, but suggested the chances of a later adjustment are growing.

"Recent weaker domestic indicators - particularly softer employment growth and business conditions - as well as more subdued global conditions, provide some risk to this time frame," he explained.

Minutes from last month's RBA summit suggested the base rate would go up before the end of 2011, but the pace of normalisation would depend on the economic recovery overseas.

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