RBA Rates Decision – June 2009

The Reserve Bank chose once again to leave interest rates on hold today, leaving the cash rate at 3%.

Commentators are now questioning whether the cash rate will actually get down as low as 2.5 to 2%, which is what was forecasted earlier this year.

On the fixed rate side of the fence, the movement was up, with St George and Westpac both moving their fixed rates up around 0.30% last week in light of bond market rates moving up over the past couple of weeks.  This movement has come as Governments around the world look to raise funds to cover their spending sprees in an attempt to try to kick start the world’s economies, following the Global Financial Crisis.  Also, due to almost every developed country’s Government going into deficit, they need to almost outbid each other in terms of investment returns from these bonds to attract investors.  This in turn has raised concerns about the impact its having on lending rates in the retail space, such as fixed home loans and commercial loans, as the higher these rates go, the less attractive it is for business and households to actually borrow money.  If this materialises then this could affect how quickly the global economy recovers from its recessionary phase and the longer it takes, the more danger of further deterioration in unemployment.  So interesting times ahead on the lending and bond market front…