02/02/2010 - 15:43

Public, private sector applaud RBA

02/02/2010 - 15:43

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Housing groups and mortgage brokers have been joined by the federal government in welcoming the central bank's decision to leave the official interest rate unchanged, the former saying it is an opportunity to see the effect of previous increases.

Public, private sector applaud RBA

Housing groups and mortgage brokers have been joined by the federal government in welcoming the central bank's decision to leave the official interest rate unchanged, the former saying it is an opportunity to see the effect of previous increases.

But the industry groups and various lenders also warn that future rate rises will put pressure on borrowers and the property market.

The federal government has also welcomed the decision despite economists widely expecting the central bank to raise the cash rate by a further 25 basis points on top of its three consecutive moves late last year.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 3.75 per cent after its first board meeting of the year on Tuesday.

"Today's decision means a family with a $300,000 mortgage are still paying around $600 less than they were paying 18 months ago," Treasurer Wayne Swan told parliament on Tuesday.

While interest rates still remained relatively low, the government understood rates still had an effect on the family budget.

That's why it was focused on a low inflationary strategy and making investments in infrastructure, Mr Swan said.

He also attacked the coalition for using interest rates as ammunition against the government.

The Housing Industry Association (HIA) said the decision was appropriate due to the uncertainty about economic recovery and the rate of new home construction.

"We have yet to see the full impact that the three consecutive rate increases at the end of 2009 will exert, so there was no burning need to hike rates a fourth time in five months," HIA chief economist Harley Dale said.

"There is certainly no justification for banks to lift their mortgage or business rates independently of the RBA's decision."

New home construction will continue to be driven by first home owner grants and social housing spending in 2010, but there needs to be incentives for investors as well, he said.

Mortgage broker Loan Market Group was similarly pleased with the RBA's decision, echoing the view that the impact of three consecutive rate rises last year may not yet be evident.

"What they're trying to do is assess the impact of the previous rises," Loan Market Group executive chairman Sam White said.

"Australians are also coming back from holidays.

"The RBA will also be assessing how much credit card debt has built up over the festive season."

Most mortgage holders are nonetheless preparing for rate rises later in the year, Mr White said.

"I think most mortgage holders are expecting a tightening of the cycle and for more rate rises to come this year, possibly as much as 0.5 per cent above the current level," he said.

Mortgage Choice corporate affairs manager Kristy Sheppard said borrowers should use the reprieve to prepare for future rate rises.

"Now is not the time to sit back," she said.

"Borrowers of all types should be taking action to help ensure their budget can deal with higher repayments over 2010."

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