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Neutral a Good Gear for the RBA

By David Gordon

The Reserve Bank of Australia (RBA) staying neutral on official interest rates is helping to restore confidence in the domestic economy, says leading mortgage broker Loan Market.

Loan Market Chief Operating Officer Dean Rushton said the central bank maintaining its wait and see approach by leaving the cash rate at 4.75 per cent for the 10th consecutive month was a positive move.

Mr Rushton said there’s been a see-saw outlook on rates in the past several months with domestic inflationary pressures and concerns about United States and European debt crisis pressuring a rate movement, both up and down.

“The RBA had warned of a rate rise at its June board meeting due to inflationary pressures but by August the RBA had softened it’s outlook on a rate rise and in September we’ve seen rates stay in a holding pattern, with the RBA citing mixed signals from the economy,” he said.

Mr Rushton said the rate reprieve during the past ten months has been a rally point of confidence for consumers, who have had their confidence unsettled by increased costs of living, a proposed carbon tax and a slow-down in the retail sector.

“We’re finally starting to see entrants into the property market again, especially First Home Buyers, who have been nearly non-existent this year. The RBA’s decision to keep rates on hold this month, should help more people feel confident about getting into the property market. “

Mr Rushton said a recent national survey by Loan Market found that the majority of respondents expect the RBA to lower rates before the end of the year.

“Fifty six per cent of those surveyed believe there will be at least one rate cut by the end of the year and 22 per cent believed rates would be lowered twice,” he said.

“We’ve also seen significant movement from lenders with their fixed rate offerings. With some fixed rates sitting as low as 1.5% below the average variable rate, there’s certainly an outlook by lenders for a rate reduction in the near future.”

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