Latest NewsInterest Rates Stay SteadyFriday, 31 March 2017

Borrowers get a reprieve with interest rates remaining unchanged for a fifth month.

The Reserve Bank has granted Australia's borrowers a reprieve, leaving interest rates unchanged for the fifth month running amid signs of quickening economic growth and subdued inflation.

Three of the big four banks - NAB, ANZ and Westpac - indicated they were likely to leave their rates unchanged. Westpac and the Commonwealth Bank are yet to declare their stance.

The central bank left its key cash rate at 4.5 per cent, defying widespread expectations that it would increase it to 4.75 per cent.

"It's a bit of a surprise," said Macquarie senior economist Brian Redican. "The press release (accompanying the RBA decision) looked consistent with an interest rate increase".

"The present uncertainty in the financial markets is keeping the RBA on the sidelines," Mr Redican said, adding ''that higher interest rates will be required."

Holders of a typical $300,000 mortgage are already paying $300 a month more than they were a year ago, when the RBA began the first of six rate rises to return borrowing costs to their long-term levels as the economy bounced back.

There was speculation an increase may come as early as this week, but National Australia Bank, Westpac and ANZ said no change to their mortgage rates is imminent.

"We have not made any announcements regarding any changes to our standard variable interest rate at this time," said a spokesperson for NAB.

Westpac also ruled out a rate rise until after next month's Reserve Bank meeting scheduled for November 2.

''Our standard variable rate remains unchanged in line with today's RBA decision,'' said a spokesperson for Westpac.

''We have no current plans to change our standard variable rate ahead of next months' RBA meeting.''

The Commonwealth Bank said its rates are under review and declined to comment on its likely decision.

Rates outlook....

And the prospect of an official rate rise still looms after the RBA hinted strongly last month it will use rate rises to combat inflation pressures from the booming commodity export sector - a suggestion repeated today by RBA governor Glenn Stevens.

''The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being,'' Mr Stevens said, in a statement accompanying the RBA decision.

''If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target,'' Mr Stevens said.

Inflation figures for the September quarter are due on October 27, just days before the central bank's next interest rate meeting on Melbourne Cup Day.

Financial markets were pricing in an increase of 41 basis points in 12 months' time - implying at least one more rate rise by the RBA by then - down from 53 basis points prior to today's RBA decision.

Stocks pared their day's losses after the announcement, ending about 0.4 per cent lower for the day after being off more than 1.4 per cent earlier.

RBA view....

The RBA signalled that continuing doubts about the health of the international economy contributed significantly to its decision to stay put on interest rates this month.

''Financial markets are still characterised by a degree of uncertainty, and are responding both to differences in growth outlooks between regions and evident strains on public finances and banking systems in several smaller countries in Europe,'' Mr Stevens said in his statement.

Greece, Spain and Ireland are among European economies struggling to cope with soaring budget deficits and slowing growth.

By contrast, Australia's economy is showing ''growth around trend over the past year,'' with prices for the country's commodity exports ''very high,'' the RBA governor said.

Indeed, Australia's key economic measures are mostly improving, with the government's fiscal stimulus spending easing back just as private spending perks up to take up the slack.

Importantly, the quickening growth is yet to stoke a pick-up in inflation, with prices growth moderating from ''the excessive pace of 2008,'' the statement said. ''The effects of the rise in tobacco taxes aside, CPI inflation has been running at around 2.75 per cent over the past year. That looks likely to continue in the near term,'' he said.

The Reserve Bank aims to keep inflation between a band of between 2 and 3 per cent over the medium term.