The Reserve Bank of Australia has kept interest rates on hold at 3.75 percent this week, delivering surprise relief for cash-strapped homeowners.
The RBA had been widely expected to hike rates by 0.25 percent – which would have piled an extra $60 on to the monthly mortgage repayment bill for variable rate customers with a $400,000 loan.
The surprise move to keep rates on hold follows an unprecedented three consecutive rate rises from the RBA. Glenn Stevens, governor of the central bank, said this week it was still too early to see the effect of the earlier rate hikes.
“With the risk of serious economic contraction in Australia having passed, the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” he said.
“Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point.
“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,’ he added.
Earlier this morning Prime Minister Kevin Rudd fuelled fears of a rate rise by urging the Big Four banks to temper their reaction to any rise from the RBA.
“Let’s face facts, any increase in interest rates has an effect and hurts working families, that’s the truth of it,” Mr Rudd told the Nine Network.
He asked the banks to follow National Australia Bank in promising to keep interest rate adjustments within any official rate rises.
NAB’s promise follows the public outrage sparked in December 2009 by three of the big four banks raising interest rates by more than the central bank.
Mr Rudd warned the banks today not to underestimate the impact of the public’s attitude to rate moves.
Westpac slugged its mortgage holders with a 45 basis point increase following the RBA’s 0.25 percent rise in December, while CBA and ANZ raised rates by 37 and 35 basis points respectively.
NAB however, matched the RBA’s move and sought to poach new customers from rivals amid the public backlash.
RBA governor Glenn Stevens became the first central banker from the G20 to push up rates last year after the economy dodged a technical recession and began showing signs of a recovery.
Mr Stevens warned homeowners last year that as the economy rebounds, he would seek to haul interest rates back towards more normal levels – seen as around 5 percent.
Meanwhile, central banks in the US, the UK and Europe all continue to keep their benchmark interest rates at historic lows.
Announcing the RBA’s decision to keep rates on hold today, Mr Stevens warned that further rises were on the horizon.
“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,” he said.