Interest rate up 0.25% as of today
Where is this information?[
]DIRECT FROM AAP
The Reserve Bank of Australia today raised the official cash rate by 25 basis points to 5.00 per cent.
The bank’s board has announced the decision it made yesterday at its second last meeting of the year, and the issue of a rates rise was on the agenda.
The official cash rate had remained unchanged at 4.75 per cent for 17 straight months.
Businesses and farmers urged the bank to leave rates on hold, warning a rise would send the Aussie dollar even higher – slowing growth – and choke off a rebound in business confidence.
In a statement, the central bank said interest rates had been set low in response to weak world conditions, low global inflation and risks to domestic growth but the boost was no longer needed.
But the bank said international conditions were improving, and economic forecasts were being revised upwards.
The Australian economy was now picking up and the housing market remained buoyant.
“Strong domestic demand appears to be the main factor so far, with both consumption and business investment growing strongly,” the bank said. It said rising house prices would further fuel growth by supporting strong household spending.
Although inflation was unlikely to rise and would probably fall in the shorter term as the higher Aussie dollar pushed down the prices of imported goods, the risks were starting to tilt to the upside.
The Reserve Bank said the 14 per cent rise in borrowing over the past year showed the expansionary impact of low interest rates, and increased the danger of leaving rates on hold for any longer.
“That is a much faster rate of growth than can be expected to be consistent with economic stability over the longer run.
“Short periods of rapid credit growth have not typically been a major concern for monetary policy, but this growth has been sustained for some time and at present shows no sign of abating.
“Given the above, the Board’s view is that it is no longer prudent to continue with such an expansionary policy stance.
“The strength of demand for credit increases the danger associated with delaying a tightening of policy that is called for on general macroeconomic grounds.”
AAP
Damn! I just heard that on the radio too. I thought it might have been a bit longer before they rose [
]awww soleil
)Don’t worry- a .25% rise will just slow things down a little. Perhaps people will think twice before they buy that new off-the-plan apartment in an oversupplied area. For those who have been careful and not too highly geared, it will just become a bit more of a tax deduction [
]kay henry
The other thing I’d say about this interest rate is that it’s like a little “taste test” by the RB that things have to change re spending. A .25% increase won’t affect people much in terms of repayments. But this .25 warning is indicative that the RB intends to kill off the housing boom for those who can’t afford to play in it.
kay henry
This is from Maquarie Bank:Policy Flash
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> Australia’s Central Bank Raises Cash Rate to 5.00%
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> The RBA> ‘> s decision to tighten monetary policy in November came sooner than we had expected given that GDP growth over the last year was only 2% and inflation looks set to fall below 2% in the March quarter 2004. However, the explanations for the rate rise – a stronger international outlook, stronger rural production and a still-strong housing market – were not surprising.
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> How much further will rates rise and when?
> The fact that the RBA says that rates were only > “> mildly expansionary> “> suggests that they do not see a need to raise rates substantially in order to return interest rate settings to neutral. Nor does the RBA provide any suggestions that interest rates will to be pushed into contractionary territory given the outlook for either growth or inflation. For that reason, we think interest rates will only need to rise by another 25 or 50 bps before the RBA puts interest rates on hold once again.
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> We also suspect that the RBA will proceed quite cautiously in raising interest rates during the tightening cycle given the risk that it could expose some fragility in household balance sheets. We remain reasonably optimistic about the ability of the consumer to withstand modestly higher interest rates but nevertheless concede that it is a risk. And for the RBA there seems relatively little benefit in taking the chance of undermining confidence.
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> This consideration may also have been a factor in the RBA> ‘> s decision to surprise analysts by raising interest rates in November. In effect, by doing so, the RBA has achieved the maximum bang for its buck. In other words, its possible that a surprise rise in interest rates may trigger a change in consumer behaviour (in terms of their willingness to invest in housing) while not placing undue pressure on their cash flows.
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> Thus, while we didn> ‘> t expect the RBA to tighten policy in November, it may be a mistake to conclude that they are intent on raising interest rates aggressively in this cycle. We suspect that they will closely monitor the reaction of consumers and businesses to this decision and see what impact it is having on behaviour before moving again. Thus, there is an argument that they should wait until February next year before nudging rates higher. If, however, consumers ignore the rate rise, then the RBA could increase rates again in December.
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> The other thing to watch is the reaction of the A$, which shot up by more than half a cent after the decision. The RBA made an oblique reference to A$ strength in the statement, suggesting that it was less of a concern because the global economy was picking up. While this is true, we have some concerns about the extent to which the A$ has already risen (and the pace of the appreciation) compared with the improvement in global demand. Commodity prices in A$ terms are much lower than a year ago. Thus, this must remain another constraint on an aggressive tightening cycle.
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