Australians paying off a mortgage and credit card bills can stop sweating, for now, thanks to the central bank’s announcement to leave interest rates untouched on Wednesday morning.
Economists predict interest rates will stay on hold until at least the end of 2007. But the Reserve Bank of Australia (RBA) is expected to maintain a tightening bias, which means interest rates are more likely to climb than fall. When it comes to Wednesday’s decision, falling banana and petrol prices have helped reduce the headline inflation rate, Grange Securities research director Stephen Roberts says.
This means the annual headline inflation rate, as measured by the Consumer Price Index (CPI), will go down further, making it harder for the RBA to justify a rate rise in coming months. Interest rates were last raised in November 2006, by 25-basis points, to their present level of 6.25 per cent.
Mr Roberts said headline inflation was likely to go even lower in the second quarter of this year. “That headline 2.4 per cent annual inflation rate will come down to 1.6 per cent,” he said. The underlying inflation rate, which excludes items recording large quarterly price changes, is expected to fall to about 2.5 per cent, which is in the middle of the central bank’s target zone. More….