 Official rate increase
The Reserve Bank of Australia has lifted the official cash interest rate to 3.25 per cent.
The cash rate has been raised from its 49-year low of 3 per cent, following the Reserve Banks monthly policy meeting today.
Predictions of a rate rise were coming in strong this week, as economists saw positive financial data from the previous month. Home loan rates are now likely to rise, and home owners will be watching and waiting to see by how much.
Just last week though, the financial markets were forecasting official rates would remain on hold at the October meeting. This view changed after more positive jobs data was released yesterday.
Housing data has been looking strong also, with data showing that housing values have risen over all in the previous 12 months.
However, Stephen Koukoulas, chief global strategist at TD Securities, is not convinced that rates should rise just because of some positive housing data. He has written an open letter to the RBA board arguing against the rate hike.
Mr Koukoulas is concerned that raising rates this early in the economic recovery could cause a "double-dip recession". "This interest rate hike could really run the risk of whether you call it a double-dip recession or a W shaped growth performance, there's a real risk that the Australian economy could buckle under a premature tightening in policy."
The official interest rate has sat at 3 per cent since April of this year. Reserve Bank Governor Glenn Stevens was often quoted as saying the cash rate of 3 per cent was an "emergency" level rat, and had been sending strong messages in recent weeks that a rate hike was imminent.
Home loan rates are now sure to rise, perhaps causing financial pain to many Australian households. A rise of 25 basis points on a $300,000 mortgage means an extra $45 per month to find for repayments. And most economists say this will not be the only rate rise, many predicting another rate rise in November.
Fixed rates have already started rising, and now variable rates will be almost certain to rise, with most banks probably raising their standard variable home loan rates soon.
The global financial crisis could be declared over if more major economies move to lift official interest rates.
Currently the US and Britain also have rates at emergency levels.
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