Reserve Bank keeps interest rates steady at 3 per cent

April 2, 2013, 2:33 pmYahoo7

Economists are tipping one more rate cut by the end of the year – but it didn’t come today.

The Reserve Bank of Australia (RBA) has left the official interest rate level unchanged from 3 per cent at its April board meeting.

With stronger than expected jobs figures for February, and improvements in consumer sentiment and the housing market, the RBA was not expected to make any adjustments to the official cash rate.

While all 13 economists surveyed by AAP predicted there would be no rate change today, they were divided on the future direction of interest rates.

Seven of those economists said the cash rate would be at 2.75 per cent by the end of the year, with one final rate cut most likely in either May or June.

Is the easing cycle over?

In recent months, the outlook for the Australian economy has been looking better and both the Chinese and US economies have improved.

The RBA has been reducing rates since November 2011, driving the official cash rate to historic lows after shaving 175 basis points during the easing cycle.

While some economists believe the easing cycle has come to an end, others are predicting a further 50 basis points to be cut by the end of the year.

"It's now at the stage where it's anybody's guess. My suspicion is there may still be one more rate cut out there," said BT Financial Group chief economist Chris Caton

"Something much bigger would have to happen in Europe before we cut rates again because of the deteriorating global environment, which is what you could say we did late last year," he said.

However, better economic conditions will mean interest rates don’t need to fall further.

"We do think as the year progresses, we will see some moderate improvement in the domestic economy and that will allow them to keep interest rates on hold," said a senior economist at UBS, George Tharenou.

Optimism about the global economy that has been shaken by the Cyprus deposit deal, the strong Aussie dollar, weakness in commodity prices and a pick-up in non-mining sectors are expected to weigh on the RBA’s deliberations for the remainder of this year.

Is it time to fix rates?

With interest rate levels at the lowest levels in years, is now a smart time to lock in home loan repayments with a fixed interest rate?

“Right now, fixed interest rate home loan suppliers are out there screaming they have pushed their rates down to numbers like 4.99% for two years. Anyone who has laboured under 9%-plus rates before the GFC knows how good 4.99% sounds,” said Yahoo7 Finance expert Peter Switzer.

Compare the best fixed rate home loans on the market right now with our online comparison tool Moneyhound.

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The latest stats are the final nail in the property doomsayers’ coffin
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