Now that ALP have been returned to power, and the RBA have made a decision not to move interest rates from 4.5%, there is an expectation that the major banks will be reviewing their interest rate position within a matter of days. In fact some may choose to increase interest rates before the end of this week.
It will be interesting to see which one of the big banks will make the first move.
According to Glenn Stevens from the RBA, the Australian economy has been growing at around trend pace. There had been high levels of public spending over the past year and the boosting of incomes due to terms of trade will add to demand over the coming year.
However, Stevens hinted that a rate hike could be on the cards if inflation rises. In his statement, he warned that, looking through to mid-2011, “underlying inflation is likely to be in the top half of the target zone” and that CIP inflation will probably be just above 3% for a few quarters due to the impact of the tobacco tax changes.
Industry has reacted positively to the rate hold, with David Airey, president of the Real Estate Institute of Australia (REIA), saying that the move will “give Australian families a break”.
The Housing Industry Association (HIA) also stated that the RBA made the right move keeping interest rates on hold, with its chief economist, Harley Dale, arguing that ”the housing industry is continuing to lose momentum in the second half of 2010 and is certainly not an environment supportive of further rate hikes.”