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RBA Walking Rates Tightrope

Tuesday 1st December 2015

The Reserve Bank of Australia (RBA) will continue to walk the interest rate tightrope over the summer as it considers a mixed bag of economic data, says mortgage broker network Finsure.

Finsure Managing Director John Kolenda said it was no surprise to see the RBA following its final deliberation of 2015 leave official rates at the record low of 2.0 per cent.

But Mr Kolenda said a further rate cut is highly likely in the first half of 2016.

“The RBA has been a walking a tightrope leaving rates on hold since May this year due to the mixed economic data,” he said.

“The central bank will no doubt keep a close eye on the economic data over the next few months.

“But the slowdown in China and its impact on the Australian economy, the slump in the resources sector and the contraction in the Sydney and Melbourne real estate markets are all pointers to the likelihood of another rate cut next year.

“There is also very little evidence of the economy transitioning from a mining to services or technology innovation which would provide the necessary economic growth.”

Mr Kolenda said a major issue for the RBA to consider is that lower rates have become the “the new normal” in the post global financial crisis (GFC) world with consumers now accustomed to them and likely to be highly sensitive to any future increases in rates.

“The GFC has changed society and consumers are generally more sensitive to economic conditions and what is happening with interest rates, which the RBA hasn’t increased for more than five years,” he said.

“We have seen a dramatic change in consumer behaviour as they prefer to save money and spend wisely versus the credit spending frenzy for the decade before the GFC.”

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