Good news. The RBA keeps rates on hold.

As widely expected, the RBA has kept rates on hold for another month. Good news for variable rate mortgage holders.

It is however important to note that factors such as the reported skills shortage and low unemployment rates are likely to put upward pressure on wages. This is a concern for the RBA in its efforts to fight inflation. The major banks have also predicted an increase in the RBA cash rate of between 0.50% and 0.75% this year.

Interestingly, the average 3 yr fixed rates, 5 yr fixed rates and variable home loan rates have remained relatively unchanged for the last few months (see table below).

Personally I am not so sure that interest rates will increase this year for a number of reasons:

• Interest rates are already relatively high and were slowing our economy even before the floods hit
• The flood crisis has hurt our confidence, harmed exports and it will mean businesses will have less resources to hand while the country re-builds
• The high Aussie dollar is harming exports
• The US, Japanese and European economies are still suffering

Of course only time will tell how this plays out.