Further cut not supported

THE Reserve Bank (RBA) has decided to hold-off on providing homeowners with further financial assistance by electing to keep the cash rate on hold at 3%.

In their first meeting since December 2012, the RBA considered that despite inflation in December 2012 being half of what was anticipated, conditions did not warrant a further cut in the cash rate.

According to the ABS, the December consumer price index rose by a mere 0.2% – a fraction of the 1.4% jump which occurred in the September quarter – with inflation moving towards the lower end of the RBA’s 2%–3% target range at 2.2%.  The RBA’s next meeting will be held on March 5, 2013.

Point of Interest

THE Reserve Bank of Australia (RBA) is responsible for monitoring and altering the official cash rate for Australia. They can either raise or cut the official cash rate by a measure of ‘basis points’ in an effort to manage the Australian economy’s inflation. These changes will affect the interest rate that banks will charge customers for loans – most notably variable rate home loans.

Since the Global Financial Crisis (GFC), the cost of borrowing has increased to the point where banks will only absorb costs up to a point. In an effort to remain profitable, banks may autonomously pass on – or completely ignore – rate changes despite the RBA’s decisions.