2014 Sep 18 - Interest Rate Held Steady After July Increase
Following the increase of 25 basis points at the previous meeting held
in July, the monetary policy committee (MPC) announced today that the
prime interest rate will remain unchanged at its current level of 9.25%.
Colin Fibiger, CEO of Property Network, said that although the Reserve Bank has reiterated on
numerous occasions that the domestic interest rate cycle is currently
following a gradual upward trajectory, the fall in consumer price index
(CPI) since the July meeting has eased some pressure on the bank to hike
rates. He notes that while the Reserve Bank’s stance will remain
hawkish based on the current CPI level, the interest rate is expected to
remain at its current level for the remainder of this year, which is
good news for consumers.
“Although consumers have had to deal with petrol and food price
increases during the first three quarters of this year, food price
inflation is gradually easing and is expected to continue to fall. The
same can be expected of the petrol price, which will bring about some
relief for cash-strapped households,” says Fibiger. “With the Reserve
Bank’s CPI inflation target between 3% and 6% year-on-year in the six to
24 month future period, the lower inflation ends this year, the less
pressure on the bank to increase rates next year.”
The CPI inflation had climbed from 5.3% year-on-year in November 2013
to 6.6% by June this year. The climb prompted the monetary policy
committee to push rates up by 75 basis points during this period.
Economists predict that although the CPI inflation has already seen a
decline, it is expected to fall further and re-enter the inflation
target set by the Reserve Bank. This will significantly reduce the need
for any further rate hikes this year, especially considering the current
weakness in economic growth.
Wherever possible, consumers and potential property buyers should use
this period of steady rates to continue to focus on reducing their
interest-bearing debt levels in order to show higher levels of
disposable income. Fibiger says those who currently own property should
try to pay the extra money into their bonds to reduce their loan period
as well as the capital amount owed.
"Reducing the loan period is just as important as the interest rate for
homeowners to take into consideration. Aside from reducing the term of
the loan, it will also decrease the total interest paid over that
period,” he says.
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