 Economy looking up as rates rise
Rate rises have begun, and Reserve Bank Governor Glenn Stevens is giving the global economy the "all clear".
In a move that dismayed borrowers but cheered up savers, the official cash rate in Australia was lifted by 25 basis points to 3.25% last week. Home loan rates have of course risen by the full 0.25% and savers are seeing their saving interest rates rise too, so it is certainly a mixed reaction.
Business and unions are not sure the rate rise was a good idea, concerned about the effect it will have on the economy. Housing industry experts are also looking to see what effect this rise has on the property markets. The interest rate rises come at the same time that the boost to the first home owners grant is being wound down.
The Reserve Bank of Australia (RBA) decision to go boldly where no other G20 country has gone - being the first to raise its key interest rate since the onset of the global recession - may have caused some initial hand-wringing.
However, labour force data seems to indicate that the economy is looking up and therefore the rate rise appears justified to others.
Job adverts have increased and housing values have risen in the previous month.
RBA Governor Glenn Stevens said following the improvements in economic figures, the basis for reductions in late 2008 and early 2009 had "now passed". He stated before the rate rise that the 'emergency' low level of interest rates could not last.
Treasurer Wayne Swan has said the rate rises would cause some financial strain to a few households, but thought that most would not be surprised by the increases.
But Mr Swan said it was a consequence of Australia outperforming other advanced economies.
Major banks have already passed on the full rate rises to home loan customer, increasing variable mortgage rates by 25 basis points last week and adding around $40 to monthly repayments on a $250,000 mortgage.
Mr Swan said average homeowners were still around $700 a month better off than they were last August and before rates were slashed. The RBA began aggressively cutting rates last August in the midst of the global financial crisis. The rate cuts along with government stimulus packages seem so far to have prevented Australia from slipping into a recession, and has supported the housing market.
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