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The Reserve Bank of Australia has lifted the cash rate by 25 basis points on Melbourne Cup Day 2009, the second 25 basis points increase in as many months.
The rationale put forward by Governor Glenn Stevens is “the risk of serious economic contraction in Australia now having passed, the board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker”.
Economic growth is likely to be close to trend over the next 12 months while inflation should remain within the bank’s 2 – 3 % target range. The decision yesterday is seen as part of RBA’s efforts to “normalise” the official cash rate which, after this second rate rise, is still at a 44-year low and consumers need to realise that Australia’s economy is performing much better compared to all other industralised nations in the world such as the UK, USA, Japan and most European countries.
Therefore, the RBA’s actions yesterday was merely to gradually lift the cash rate which was deemed to be at “emergency levels” to a point which is more representative of the state of the economy. The RBA is still cautious and will continue to monitor the state of the economy to determine its course of action for the official cash rate in December 2009. In the event there is a reprieve, then the RBA will only meet again in February 2010.
Popularity: 14% [?]
The impending rate rise this coming Tuesday will have significant implications on the property market where home prices have increased by over 3% in the September 2009 quarter. Key points to note:
- The Reserve Bank is targeting inflation and not trying to curb rising home prices.
- Due to the current state of the economy being stronger than any developed nation in the world, the RBA feels that interest rates are no longer justified to be at 49-year lows.
- A 50 basis point increase will be the largest hike since February 2000 and will add $90 a month to a $300,000 mortgage. However, experts feel this is unlikely to have a significant dampening effect. Home buyers have already factored in a series of rate rises into their budgets.
- However, a rate rise is likely to induce certain people to make snap decisions, which experts agree is unwise. Unless you are getting into the market for the first time, the notion that buying now to avoid impending rises in home prices will only contribute to a property bubble which will burst sometime in the future. Previous burst bubbles have wide-spread effects on all people.
- BIS Shrapnel predicts that Australia is at the verge of a property bull market and that prices will double in 12 years. This prediction coupled with rising home prices are fuelling the anxiety to buy now. To me, buyer urgency is only justified if you do not currently own a home and is paying high rents due to the acute dwelling shortage all over Australia.
If you are looking for your first home and want to get out of the rental trap, I would advice doing a thorough financial check to ascertain your affordability for getting finance, then do the mandatory research and consider buying your home along established principles. The why, where, when, how and what to buy are now important considerations in view of upward pressure in interest rates. Good luck and I wish you all the best in the hunt for your new home.
Popularity: 14% [?]
The recent interest rate rise of 0.25% to 3.25% will have little impact on the Australian economy considering the level has been reducing over the last year to historical lows and that consumers have been factoring a rise in recent months. The economy has been performing well and will continue to be resilient as long as subsequent anticipated interest rate rises are gradual. The RBA will continue to ensure the balance between growth and overheating against a stagnating economy is well managed.
Popularity: 8% [?]
One of the key rationale for the recent interest rate increase given by the Reserve Bank of Australia was that the economy has performed incredibly well compared to all the major developed nations around the world. Unemployment remained steady at 5.9% although this figure is expected to increase over 2010.
Given the cash rate of 3.00% was at historical 49-year low prior to the rate rise, the RBA felt this level of interest rate is no longer required in view of the recent economic performance. It is expected the cash rate will gradually increase over the next 6 – 12 months.
Popularity: 3% [?]
