Newspaper article Sunshine Coast Daily (Maroochydore, Australia)

Latest Interest Rate Cut May Not Be Last; Low Inflation, Higher $A Prompt RBA's Decision

Newspaper article Sunshine Coast Daily (Maroochydore, Australia)

Latest Interest Rate Cut May Not Be Last; Low Inflation, Higher $A Prompt RBA's Decision

Article excerpt

DESPITE the second rate cut this year from the Reserve Bank, consumers can expect the major banks to increasingly adjust their interest rates independently.

In the face of continuing low inflation figures the RBA cut the cash rate by 25 basis points on Tuesday to a new low of 1.50%.

1300 HomeLoan managing director John Kolenda said the fierce competition in the mortgage market has resulted in highly aggressive pricing from lenders as they battle for market share at the expense of margin.

"This might continue for a little while but I would expect many of them to reprice sometime this year as the current margins are unsustainable with the additional costs banks are facing along with the pressures of return on equity for their shareholders.''

Despite the RBA lowering its official rate to a new record low, Mr Kolenda said the central bank was rapidly losing economic influence with out of cycle interest rate movements and inflation impacted by many more forces.

"Consumers are far more sensitive and reactive when official interest rates go up and they have not necessarily responded when rates have been dropped by the RBA to stimulate the economy.

"Gone are the days when the RBA's official interest rates and the banks move together as we have seen with a host of out of cycle rate movements in recent times.

"Today interest rate movements and inflation are influenced by domestic, international and regulatory forces and the RBA is becoming redundant.

"Rather than seeing our broader market move positively at once, we now see segments of improvements and others which remain patchy. Nothing works in sync any more.

"Many more influences are coming into play, which makes it hard for the RBA to play a significant role."

Mr Kolenda said in the continually challenging economic climate consumers can at least count on interest rates to stay low for the foreseeable future. …

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