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Interest rates remain on hold

HOME-OWNERS have been spared the pain of another interest rate rise and the crippling drought and lower oil prices may even see mortgage repayments fall in the new year.
In a widely anticipated decision, the Reserve Bank of Australia kept rates on hold for the second straight month, leaving the cash rate unchanged at 6 per cent.
The latest review was the bank's first with new governor Glenn Stevens at the helm.
The bank delivered rises of a quarter of a percentage point in May and August, and latest official figures showed the increases beginning to affect retail spending and taking some steam out of the housing sector recovery.
While many economists are still tipping a rate rise in November after the bank digests quarterly inflation data, there are also predictions the next move could be down, not up.
The bank's previous governor, Ian Macfarlane, flagged another rise before the end of this year but CommSec chief equities economist Craig James said there were few reasons for another increase.
A big drop in petrol prices as world oil prices slacken, worsening drought conditions and a sluggish housing market could see the Reserve cut rates early in 2007.
"We are struggling to come up with reasons to justify another lift in interest rates but the case for lower interest rates is certainly gaining traction," he said.
"Whether the next move in interest rates is a rate cut or rate hike, it is looking more and more like a decision that will be made in 2007."
The drought, which could shave as much as a full percentage point off economic growth, shows no sign of easing and could prompt the central bank to rethink its strategy, Mr James said.
"At the time of each major drought over the past 20 years, interest rates have been reduced markedly to support economic growth," he said.
But ANZ's head of economics, Tony Pearson, said inflation would remain the key indicator for the central bank, with conditions still favouring a rate rise before the end of the year.
"Our forecasts suggest there will be no abatement in core inflationary pressures," Mr Pearson said. "We continue to believe the risks remain skewed towards further tightening by year's end."
In other figures out yesterday, Australia's trade deficit narrowed by more than $100 million to a six-month low - but the nation still notched up its 53rd consecutive monthly deficit.
The balance on goods and services was a deficit of $208 million in August, down $112 million from the July figure, the Australian Bureau of Statistics said.
Trade Minister Warren Truss welcomed the 1 per cent increase in exports for the month but Labor trade spokesman Kevin Rudd said the poor export performance had brought the nation no closer to recording a surplus.