Ten good reasons for rate reprieve

PLUMMETING consumer confidence and higher mortgage repayments are among 10 key reasons why the RBA should leave rates on hold.

RBA logo /File

Ten good reasons for rate reprieve

PLUMMETING consumer confidence, a weakened housing sector and higher mortgage repayments are among 10 key reasons why the Reserve Bank should leave interest rates on hold today.

But homeowners won't have much to sing about, with major lenders this year ignoring the Reserve Bank's monthly rate decisions and raising mortgage rates anyway.

The bank's board gathers today at its monthly monetary policy meeting in Sydney, with the evidence against a rate move stacked so high experts predict an on-hold decision.

Economists believe the fact inflation is still far too high for the bank's liking won't disguise the fact consumers and businesses are only just starting to feel the pain of the recent official rate rises in November, February and March.

Coupled with the recent trend by banks to blame the global credit crisis for their need to pass higher interest rates on to customers, the Reserve Bank could be on hold for all of 2008, they say.

Recent data suggests Australia's $1 trillion economy is grinding to a halt. Figures yesterday showed a severe slowing across the retail, finance and insurance sectors of the economy. The Performance of Services index slumped in April to a five-year low, indicating a contraction.

"Clearly the combination of higher interest rates, petrol prices and housing costs are taking their toll on spending and confidence levels,''' Commsec's Craig James said.

Petrol prices were also hurting the household budget, with the national average at $1.47 per litre and the average family now forking out $206 a month to fill up.

The Reserve Bank kept its benchmark overnight cash rate target unchanged at 7.25 per cent in April after four increases in the previous seven months.

Australian Retailers Association executive director Richard Evans said: "We believe the February and March rate rises are yet to impact the market.

"We won't see the full impact of those rises by the end of the year, so we want the RBA to take a cold shower and sit and see what happens as a result of what they've already done.''

Elsewhere, sales of newly-built homes slumped in March for a second month, consumer confidence plunged in April to the lowest levels in 15 years, and companies remained pessimistic for a third consecutive month.

The Reserve Bank admitted last month that lenders raising rates independently was also hurting household budgets.

The global slowdown will also influence the bank's decision, with the US Federal Reserve last week making its seventh cut in the cash rate since September.

Why the RBA should leave rates on hold
1. Four RBA rate rise since August '07
2. Banks hike rates by 0.42 per cent in 2008, on top of RBA rises
3. Record petrol prices
4. Retail sales slump 0.1 per cent
5. Business confidence down
6. Consumer confidence at lowest level since 1993
7. Sharemarket and company profit weakness
8. Federal Budget next week
9. Building approvals down 6 per cent
10. Slowing credit growth