Minutes from the October Reserve Bank board meeting have been released and seem to point towards larger rates increases in coming months.
Financial markets are now tipping a rise of 50 basis points to official rates in November.
The October policy meeting saw the cash rate go up by 25 basis points, to 3.25% which was the first increase in 19 months, ending the downward trend seen throughout late 2008 and early 2009 as the central bank tried to prevent Australia slipping into a recession.
Economists had been predicting a further small increase of 25 basis points when the Reserve bank of Australia meets in November. But now all bets are on a larger 0.5 percentage point increase.
The Reserve Bank is serious about the 2-3 per cent inflation target and is willing to do whatever it takes to achieve it.
"Compared with previous meetings, the risks in waiting had increased. In particular, underlying inflation was still, on the latest data, above the target," the minutes read.
"Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term."
The monetary policy section of the minutes reveal there is ongoing debate within the RBA between inflation risks and rate changes.
Recent economic data has been released showing Australia is bouncing back from the global economic crisis better than expected and so are many of our trade partners. Asia and in particular China, are experiencing a remarkable economic resilience so far and so is our local economy.
The RBA wants to keep inflation in check and this is the primary reason the central bank raised rates two weeks ago.
Housing data shows that values are strong, with average prices rising 2 per cent in August.
Small rises to interest rates are not expected to hurt the industry too much, as rates are still historically low, however, if economists are correct about larger jumps in rates by the end of the year, many consumers may find property ownership out of their reach again.
The 25 basis point increase two weeks ago was passed on by the banks to home owners, meaning around an extra $50 per month to an average $350,000 mortgage.
An increase of 50 basis points will mean around an extra $100 per month on the same size mortgage, on top of October's rate rise.
Share your thoughts on increasing interest rates on our forum
Join the discussion on Interest Rates - Up or Down?
|