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Rates stay on hold but economists warn of further rate cuts



The Reserve Bank has today kept the cash rate on hold at 2.75% – in line with the predictions of most senior economists in Australia, sighting the major reason as the recent depreciation of the Australian dollar against the US dollar.


TD Securities’ head of Asia-Pacific Research, Annette Beacher stated that “the six percent fall in the Australian dollar since the May Board meeting removes the urgency for near-term action.”

In an overall sense, it appears that low inflation data is providing grounds for potential further rate cuts in the months ahead. Inflation rose by a minimal 0.2% in May following the last rate cut, but was offset by low fuel prices and declines in domestic travel costs. This represents a 0.1% decrease since April, and sees the annual inflation rate approach the lower end of the target band of 2-3% at 2.2%.

Furthermore, property prices took a hit over the month, declining by 1.2% nationwide. Job ads continued to fall by 2.4%. If figures continue this way or if they worsen, we could see another rate cut as early as next month.

According to Westpac’s Chief Economists, Bill Evan “the markets are currently pricing a 76% probability that a cut of 25bps will happen by August 2013 and a 100% probability of that cut occurring by year’s end and a 75% probability of a second cut in that timeframe”.

In the meantime, why not take a moment to make sure that you’re getting the best deal in the market on your current home loan.

*All facts and figures according to SMH – 03/06/2013