8th October 2004

With two days before the Federal election, a fall in unemployment was good news for the Government.

But the financial markets took a different view. Short-term interest rates rose yesterday as a pre-Christmas rise in official rates was seen as more likely.

A day earlier the Reserve Bank confirmed that it would not raise rates. This left the cash rate at 5.25% for the ninth consecutive month.
Following the bank's announcement there was speculation that rates may not rise until next year. This view was based on the premise that high oil prices would keep interest rates down. This was because the price of fuel would impact on households and businesses would face a squeeze on profits because of higher transport costs.

Some 24-hours later the market had changed its mind. Rates could rise this year.

The central bank's decision not to increase rates this month followed weaker than expected figures for retail sales, building approvals and exports.

The price of oil may have made the Reserve Bank take a wait-and-see position.

This weekend's Federal election would also have influenced the bank's decision.

The Master Builders Association welcomed the bank's decision. Chief economist Todd Ritchie said the Reserve Bank had helped the housing market's "orderly slowdown" by leaving rates unchanged. But he does expect rates to rise.