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Glenn StevensInterest rates are likely to remain in hold for a while as the economy experiences a rare terms of trade bonanza, Reserve Bank governor Glenn Stevens says.

Mr Stevens said lending rates for borrowers were slightly higher than the average of the past 15 years.

The average rate for a standard variable mortgage is 7.8 per cent, according to RBA data.

“It is about right for where they are given we have a once-in-a-century terms of trade event that is very expansionary and all the things that flow from that,” Mr Stevens told the committee.

“It would be surprising if you didn’t have policy a bit on the tight side of normal in that event.

“Taking account of the fact that of course the exchange rate is doing a fair bit of work for us.”

The Australian dollar shed nearly half a cent to $US1.0001 after the speech, as the likelihood of a rate rise in the next months shrinks. The dollar has been around or above $US1 for the past two months, its highest levels since the currency floated in December 1983.

Mr Stevens also said the effects of serious floods and Cyclone Yasi, which caused widespread damage and dealt a major blow to some crops, would not permanently scar the economy.

“We do not think the effects on activity of these events will derail the expansion. Nor should the price effects pose a serious threat to the achievement of the medium-term goal for inflation, provided the community can understand their temporary nature and expectations of ongoing inflation remain well-anchored,” he said.

Story source: www.domain.com.au

Tags: banks, finance, interest rates, marketing, mortgage

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