Update The Reserve Bank has again slugged the nation’s borrowers, raising its key interest rate today for the third month running as it moves to keep inflation in check.
The central bank lifted its cash rate by a quarter of a percentage point to 4.5 per cent, its highest level since the end of 2008. The move was tipped by a majority of economists after surges in consumer price inflation and house prices in the March quarter.
Home loan, stamp duty, borrowing calculators
Chronology of interest rate moves since 1990
Glenn Stevens’ statement: Why the RBA lifted rates
For mortgage holders on variable lending rates, today’s 25-basis-point increase will add about $46 to the average monthly payment for a typical 25-year, $300,000 home loan, if it is passed on in full by the commercial banks. The ANZ is among banks saying it is reviewing its interest rates.
The RBA has again showed its readiness to act regardless of the political cycle, raising its rates even as the federal government readies its budget ahead of next Tuesday’s release. Australia was one of the first economies to begin raising interest rates as the global economy steadied last year, thanks in large part to the rapid recovery in its main trading partners in Asia, particularly China.
Pause a chance?
The RBA cited increasing demand flowing into the economy from the reviving mining boom as part of the reason behind today’s rate move. It hinted, though, that it may take a breather to monitor the effects of the string of six rate rises since October.
”The (RBA) Board expects that, as a result of today’s decision, rates for most borrowers will be around average levels,” RBA governor Glenn Stevens said in a statement accompanying today’s decision.
The RBA slashed its key cash rate to just 3 per cent last year, its lowest in almost 50 years, as Australia joined all major economies in stoking demand to counter the global financial crisis.
”There might be scope now for the bank to pause and assess what the impact of these recent increases have been on the economy,” said Robert Brooker, NAB’s head of Australian Economics & Commodities.
”They say they’ll continue to assess the prospects for demand and inflation but they haven’t made any clear statement that a further upward adjustment is imminent,” Mr Brooker said.
Even if the RBA does hold off in June, the pause may only be temporary as the central bank adjusts to a higher inflation rate than it had been tipping. Its own inflation gauge remained just above its 2-3 per cent target range at the end of March – even before the economy’s recovery hits full stride.
“Importantly they are now talking about inflation in the upper half of the target range over the coming year, so that is an important shift,” JPMorgan chief economist Stephen Walters told Reuters.
”Before they were talking about inflation around the middle, so they have clearly upgraded their inflation projections. They are talking now about average, that interest rates are back to average.”
Mr Walters predicts the RBA will lift its key cash rate to 6.25 per cent by end of next year: ”There is still a long way to go, but stage one is finished.”
Sixth since October
Today’s interest rate rise marks the sixth increase since October. The string of rate hikes – broken only by the summer break in January and February’s pause – is aimed at discouraging excessive borrowing as economic growth returns to more normal levels.
Before today’s rates verdict, investors were pricing in at least four interest rate increases over the next 12 months, which would bring the RBA’s cash rate – the starting point for banks when they calculate standard variable and other lending rates – to 5.25 per cent.
Financial markets took today’s RBA move in their stride. The Australian dollar lost ground at around the time of the RBA release but bounced back to 92.4 US cents. Stocks were little changed, remaining about 0.5 per cent down for the day.
Source: CHRIS ZAPPONE – The Age online May 4, 2010 – 2:37PM
