Debate Over RBA Rates Decision

The Reserve Bank of Australia (RBA) has opted to keep interest rates at three per cent, after the board's monthly meeting yesterday (March 5).

The RBA was justified in keeping the cash rate on hold, Loan Market corporate spokesperson Paul Smith said, as a number of economic factors pointed to an improving economy.

Mr Smith cited a 2.2 per cent inflation rate, an increase in retail trade and a rise in the transactions of residential real estate.

He said: "Homeowners would certainly welcome lower repayments but the RBA has to consider the wider implications of lowering the cash rate and today they've continued with the same wait-and-see strategy displayed over the past two years."

Future movements on interest rates will be determined by a number of factors, Mr Smith said, with statistics and data coming to light over the next few weeks.

While some businesses like Loan Market have stated that the RBA was well within its rights to leave rates on hold, some enterprises have come out against the decision.

Housing Industry Association senior economist Shane Garrett has described the meeting as a "missed opportunity", saying that real estate approvals data shows that the sector needs some assistance from the RBA.

"What's good for the residential construction market is good for the wider economy. International factors have squeezed many sectors of the Australian economy and this calls for further action from the RBA," Mr Garrett explained.

The HIA economist cited the RBA's own data which found that banks did not pass on the 1.75 per cent cuts that have been made since 2011.

And given the fact that households are opting out of spending their extra cash on luxuries, and are instead spending it on reducing debt, he said there is evidence for the necessity of further cuts. Mr Garrett said there is nothing stopping banks reducing their own interest rates further.

But Mr Smith said that it is too early to expect banks to act of their own volition. The only way that they will move is to bring their rates in line with competitors or make cuts the RBA has previously made but the banks didn't.

Buyers and homeowners can still source a better deal on their home loans, Mr Smith explained, as the key is to shop around and actually ask for a reduced interest rate.