RBA Hits the Brakes

This week the Reserve Bank of Australia suprised economists and commentators by leaving the overnight cash rate unchanged at 3.75%...

Polled economist has unanimously agreed before the decision that the RBA would indeed lift rates to 4%. The RBA indicated that this was a pause and that further rate rises were very likely. RBA governor Glenn Stevens said banks passing on higher interest rates than those set by the Bank was one of the reasons the hold off from another rate rise. ''Since information about the early impact of those changes is still limited, the board judged it appropriate to hold a steady setting of monetary policy for the time being,'' Mr Stevens said in his statement.Also, the RBA wanted more time to see how the recent rate rises were affecting the economy, jobs and the housing market.

Stevens cited economic data that points towards continued optimism in the Australian economy. Optimism that will likely see further rate rises ahead.

Unemployment ''appears to have peaked'', house prices have risen sharply, mining investment is strong, and there has been a jump in new home construction, says Stevens.

''If economic conditions evolve broadly as expected, the board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term,'' Mr Stevens said.

So home owners can catch some breath, but it may not be for very long. Whether it me in March or later on in the year, it would seem that if the Aussie economy remains on track, that we will see higher interest rates. It's also important to note that on this occasion everyone got it wrong. It highlights the importance of keeping in mind the bigger picture. Rates will go up and rates will come down again. They are cyclical in nature.

It is important to set up your finance in such a way that you can accommodate these changes in interest rate. What will happen if rates go to 8%? Will your mortgage be able to handle it? Talk to our team today to ensure you have a finance structure that can handle change - be it interest rates, your personal employment situation or some other emergency. Phone us on 1300 855 244.