This biggest factor influencing the RBA's decision this month, was the European debt crisis.
In its accompanying statement to its decision, it opened with “Since the board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial markets.”
It's obviously been a focus of the central bank also. It also predicted those weak European conditions will also continue.
Those concerns have flowed through to Australia, with the most obvious reaction being that near 8 per cent slump in our sharemarket in May.
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But, a correction of sorts was highly anticipated by experts. While Europe is in a lull, it is looking better in other parts of the world.
The RBA noted growth is becoming more established in North America, and growth has continued to be quite strong around Asia. So strong infact, it may need to moderate in the year ahead.
Here in Australia, there has been some mixed economic data. Retail sales rose 0.6% in April, but take out food, and sales are up just 0.1%. Spending in large stores is even worse, slowing a 9 year low.
On top of that, building approvals slumped almost 15% and is at its lowest since November 2002.
The problem is, our terms of trade is expected to rise.
That is, commodity exports and prices will still bring in a huge amount of money into the country and drive the economy.
Inflation is also becoming a bit of an issue, and for those reasons, rates will be lifted.
An exclusive World News Australia Online poll of 15 economists has found each expect at least one rate rise by the end of the year.
Most, 8 of the 15 say rates will be at 5.00% by Christmas. What I've noticed though, is that the range of responses has narrowed this month from 4.75% to 5.25%. That indications with conviction, rates will rise.
The good news for now at least, is that those rises aren't expected until at least the end of the year.
The RBA will sit on its hands to see the full impact of its 6 interest rates rises from the past 8 board meetings, and the outcomes of the European debt crisis.
The advice now from financial experts is to get on top of your borrowings, both mortgages and credit cards, and negotiate a better rate.
Pay off a larger amount of your debt now, before the price of credit increases at the end of the year.
