That's the new thinking
Official interest rate are set to remain on hold, quite possibly for the rest of the year, baring a major change to the to the economic outlook.
The Reserve Bank's new thinking, crystallised at yesterday's board meeting, is that risks to the global economy are receding and conditions in Australia are improving.
The more relaxed assessment comes as the Bank of Queensland inched up its standard variable home loan rate by 0.10 points, after last month garnering good publicity by setting itself apart form the big banks and keeping rates steady.
Chief executive officer Stuart Grimshaw said the bank had held rates for steady for as long as it could but do so no longer.
The rate rise brings the Bank of Queensland's to 7.46 per cent, in line with Westpac which which has the highest rate among the big four.
‘‘Competition is fierce for local deposits, and to remain competitive we need to provide strong rate returns on our term deposits,’’ Mr Grimshaw said.
The move opens the way for ANZ to hike its home lending rates this Friday when it holds its own interest rate-setting meeting. It lifted its rates by only 0.06 points last month and is charging 7.36 per cent for a variable mortgage, well below Westpac.
Reserve Bank board members were told yesterday that late last year the European outlook was bleak and there were fears financial markets would seize up. Those fears have passed, as has talk of a double-dip recession in the United States...
China's economy appears to be slowing in an orderly manner rather than erratically, as had also been feared.
Commodity prices – a summation of the best guesses about the global outlook – are turning back up.
At home economic growth and inflation are almost exactly where the Reserve Bank would like them to be, and jobs growth – which had been looking worrying at the end of last year, now looks less weak.
Internationally and at home measures of consumer and business confidence are picking up.
While a comfortable inflation outlook gives the Bank the ability to cut rates if it needs to, it does not require a rate cut.
Unless the Australian or international outlook changes dramatically the Bank will leave rates on hold, possibly for the rest of the year.
2004 is the most recent calendar year in which the Reserve Bank left rates unmoved. The Bank lifted rates in November and December 2003 and then left them steady until March 2005.
Bank observers make the point that this did not mean the Bank did nothing. Each month it carefully weighed up evidence on the state of the economy and each month decided that – in aggregate – things were as they should be.
Reserve Bank governor Glenn Stevens yesterday acknowledged that parts of the economy were suffering, referring in his statement to “differences between sectors and considerable structural change”, but he believes those changes are needed to lift productivity and last month told a parliamentary committee he would not stand in their way.
Trade figures released yesterday show exports up 2.2 per cent in the December quarter led by iron ore exports, up 6.1 per cent, coal exports up 5.3 per cent and rural exports up 4.7 per cent as the farm sector continues to benefit from good rain.
In today's Sydney Morning Herald and Age
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