Interest Rate

Official Cash Rate Expected to Increase

Due to inflation pressures, the official cash rate of the Reserve Bank of Australia is expected to increase. During the last RBA monetary policy board meeting, it was stated that interest rates need to go up even though the global economy remains the same. Due to the tight usage of resources, the pressure to increase interest rates due to inflation will increase.

Keeping the official cash rate for the month of October at 4.5 percent is a sign of flexibility that was recognised by the RBA board. Though the RBA cash rate could have been increased in October due to the medium-term outlook, the board maintained the cash rate but an increase is highly possible this month.

Upon the announcement of the non-movement of the RBA cash rate, the Australian Dollar went up by 99.26 US cents to 99.42. The RBA sees currency as a huge factor and a cash rate increase is highly possible if the currency continues to appreciate. However, it is expected that business investments will improve in the immediate future.

The last consumer price index is negatively surprising. Meanwhile, the RBA board maintained the cash rate to the same level as the economy is growing, credit growth is softening and exchange rate increases would bring tighter financial conditions.

It is important that you know how a rise in the official cash rate and also interest rates will affect you and your home loan repayments.

Members of the RBA board also decided to maintain the cash rate due to the limited economic data that was released before the October RBA board meeting. This fuels the possibility of a rate increase when the RBA board meets once again during Melbourne Cup Day on November 2^nd. Whist August rates show a 5.1 percent unemployment rate, terms of trade have shown signs of growth.

Little information has been released on price and salary inflation and household borrowing is showing a downward trend just like where the housing market is heading. Ample rainfall also helped improve the farming sector.