Interest rates hold steady at 4.75%

The RBA has kept interest rates on hold in June at 4.75%, marking the seventh month that rates have remained unchanged.

Yesterday a poll of 28 economists by Bloomberg found that just five expected the Reserve Bank to move on rates. An increase in rates is expected over the next few months, with July or August the likely date.

Michael Yardney, director at Metropole Property Investment Strategists, says today’s decision is just a reprieve.

“It’s not a question of ‘if’ but ‘when’ rates go up. Borrowers should be budgeting for another interest rate rise or two later on this year,” Yardney tells Property Observer.

“Three weeks ago people were certain of a rate rise in June or July. Then the latest (March quarter) GDP figures came out. That’s the major thing holding back the RBA now,” he says.

Yardney says the RBA will not want to wait too long to raise rates. “If it leaves it too late, it will have to announce too many increases too quickly. Their approach has been to do things pre-emptively.”

He says future rate rises will depend on the next round of inflation and GDP figures. To date the RBA has managed to keep inflation within the 2% to 3% range.

According to Yardney, market fundamentals remain sound – the economy is good, wages are rising, there is an undersupply of property and a rising population. The issue is weak market sentiment. An increase in rates will only worsen this situation.