RBA urged to avoid 'knee jerk' reaction with interest rates

by AB19 Sep 2013

1300 HomeLoan managing director, John Kolenda, says an improving real estate market shouldn’t serve as a trigger for the RBA to lift the official cash rate in the near future and that rates should remain low for ‘some time’ due to concerns over the broader economy.

"With the mining sector slowing, unemployment rising and the retail sector waiting to see improvement, we know that the RBA has to tread carefully," he says.

Kolenda added that, despite improved business confidence following the change in government, business is still cautious.

"It is pleasing to see the election out of the way and a surge in business confidence, but we need to see real improvements in investment and employment and we have a long way to go before we are out of the woods. We would not like to see any knee jerk reaction from the RBA should economic conditions continue to improve."

Kolenda believes the central bank made the mistake of lifting rates too high and too fast during 2009/10 after taking the official rate down to 3% in response to the GFC – and he’s worried they might consider similar tactics this time around.

"That caused a lot of damage to businesses and consumers with the RBA since then making eight rate cuts to try and make amends and stimulate activity. Borrowers remain particularly vulnerable to the impact of a rate increase while they continue to deal with significant rises in the cost of living and all the other concerns surrounding the economy."