What will the Reserve Bank of Australia decide to do with interest rates when it meets on Tuesday?
In previous months the RBA has suggested rates are likely to remain on hold for some time.
Why inflation matters
Recent Australian Bureau of Statistics data puts Australia’s inflation rate at 3%.
The Consumer Price Index rose 3% for the year to the end of the June quarter. This is at the top end of the RBA’s “inflation target” – and that is to keep consumer price inflation an average of 2-3%.
Read more: What you need to know about interest rates
What does it mean for interest rates?
ME Banks General Manager Markets John Caelli says the RBA has clearly indicated it’s comfortable keeping rates on hold.
“And we think that is likely to be at least for the next six months,” Caelli says.
“We expect the RBA’s next move will be to raise rates in the first quarter of 2015, but we’re expecting a sustained period of lower average interest rates, noting that rate increases tend to have a higher impact when coming off a low base.”
AMP financial planner Tony Rigby says there’s good reason to expect the RBA to leave rates on hold at its next meeting.
“As long as inflation remains within those targets, we have seen the RBA just maintain the rate,” he says.
As long as inflation remains within the targets, we have seen the RBA just maintain the rate.
House prices will play a role
Economist Stephen Koukoulas says inflation is probably slowing and is unlikely to trouble the RBA.
But, writing on his blog, Koukoulas describes rising house prices as “the fly in the jam jar”.
RP Data figures show capital city home values rose 10.1% in the 2013-14 financial year.
Capital city home values rose 10.1% in the 2013-14 financial year.
But it was a massive jump in Sydney (15.4%) that has pulled up the national average. In Melbourne the figure was 9.4%, Brisbane was 7%, Darwin 5.7%, Perth 5.2%, Adelaide 2.9%, Hobart 2.5% and Canberra 2.9%.
RP Data Senior Research Analyst Cameron Kusher says sellers remain in the drivers’ seat.
“However, we are seeing some leverage starting to move slightly in favour of buyers,” he says.
originally posted on realestate.com.au - click here to read more