No interest rate rise after August Reserve Bank meeting

So, the Reserve Bank board members have got together again and decided that at least for now, the official cash rate won’t rise and that looks like meaning that our home loan interest rates will stay the same for at least another month, too.

As we predicted, in the absence of a Reserve Bank rise banks will continue to wait it out rather than risk an interest rate rise before the federal election later this month, fearing a political backlash. Interestingly there’s also a political element to the Reserve Bank’s decision this week to keep rates steady – Prime Minister Julia Gillard is saying that keeping the cash rate on hold is a sure sign of Labor’s good economic management, comparing it to the situation at the previous election when interest rates were going up. On the other hand, Joe Hockey as the Opposition’s Treasury spokesperson suggested that the Labor Party’s insistence on spending is actually putting pressure on for interest rates to rise.

We also pointed out last week that the rate decision depended at least partly on inflation figures and this turned out to be pretty right. The Reserve Bank announced their decision was based on in-line growth and inflation with just modest increases in household consumer spending, so there was no need to increase interest rates just at the moment. With the global situation still looking a little shaky, the Reserve Bank suggested that it is at least partly adopting a bit of a wait and see attitude before increasing rates any higher, so future rate rises may at least partly depend on how economically stable other key countries become over the next few months.

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