Too Early for Rate Rises: Kolenda

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1300 Home Loan: A slowly strengthening economy should not automatically trigger the Reserve Bank of Australia (RBA) to raise interest rates.

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The RBA should not be too hasty in raising interest rates.

It’s premature to be talking up rates as this does not instill consumer confidence over the short-to-medium term.

An improving domestic economy shouldn't be a trigger for the Reserve Bank of Australia (RBA) to consider lifting its official cash rate, says mortgage broker network 1300HomeLoan.

Managing Director John Kolenda said there were many signs that the manufacturing, construction and retail sectors were still struggling, so further rate cuts in coming months could not be discounted.

“While there are some positive signs in the market, there are equally as many concerns about the overall economy,” Mr. Kolenda said. “It’s premature to be talking up rates as this does not instill consumer confidence over the short-to-medium term.”

As expected, the RBA in April maintained its official rate at the near-record low of 3.0 per cent, but Mr Kolenda said he was concerned by calls from some economic commentators for the RBA to lift rates again before the end of the year if there was an upturn in the domestic economy.

“The RBA made a mistake after significantly cutting the cash rate during the GFC in 2009 by raising it too quickly,” he said. “A lot of the problems we have experienced in the past two and a half years were caused by the RBA increasing the cash rate by 175 basis points to what it described as more normal levels between October, 2009, and November, 2010.”

“Even at the current levels it can be argued that we aren't at the same low interest rate levels as experienced in 2009, due to the banks clawing back approximately 50 basis points over the last year and half.

“They have since then had to reduce the cash rate by the same amount in response to a soft economy and subdued consumer sentiment.

“We are now just starting to see the benefit of those cuts flowing into the economy, so it would be madness to see the RBA make the same mistakes again.

“Consumers are just craving stability at the moment and the RBA should play its part. The central bank has at least acknowledged inflation is under control and consistent with its medium-term target.”

Mr. Kolenda said consumers could still hope to see banks lower their mortgage rates slightly as they aggressively competed for home finance business. “Considering the fact that they have clawed back some margin and the cost of funds is easing we could see one of the majors reducing rates to win over customers,” Mr. Kolenda said.

With competition intensifying among lenders due to slowing demand, we could see their rates reduced slightly by five to 10 basis points over the coming months. The recent positive signs would deteriorate dramatically - if the RBA steps in and increases rates again,” he said.

1300HomeLoan is Australia’s first mortgage broker owned home loan brand. The brand is an independent network of more than 200 of the most established, experienced, professional and successful local brokers in Australia. The network was founded by industry leader John Kolenda, founding partner and Sales Director of X Inc. Finance, and Executive Director of Loan Market Group.

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Victoria Phantharangsi
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