 Interest rates will hike again
More pain for the homeowners is expected while another interest rate hike is neighboring after Tuesday’s increase by the Reserve Bank of Australia (RBA). The central bank raised its cash rate by 25 basis points to 4.25 per cent, its second consecutive month increase, and fifth in seven months.
According to Treasurer Wayne Swan the rising rates were a consequence of a strengthening economy. But for the federal opposition it was a further sign that the government should desist from its "reckless" stimulus spending.
"The board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," RBA governor Glenn Stevens said.
If the retail banks would match RBA’s raise, the rate increase would add about $48 per month to repayments on an average $300,000 mortgage.
Australia’s largest home lender, Commonwealth Bank of Australia, was the first to raise its standard variable mortgage rate parallel with the official increase. While the National Australia Bank said on Monday that it would not lift its rates by a greater margin than the RBA. Other major banks said they were reviewing their rates.
Swan is convinced with the raise, explaining that the current rates are still lower than they were before the global recession. He calculated that someone on an average mortgage was still paying $500 less per month or $6000 less per year. On the other hand, new opposition finance spokesman Andrew Robb said homeowners are paying $3500 or more extra a year on their mortgage than they were a year ago.
"This massive increase in repayments by the average mortgage holder is a direct result of the Rudd government's reckless spending and the waste that's occurring in much of that reckless spending," Robb said in an interview.
According to economists there is now a risk the RBA could raise again the cash rate for a third straight month in May. For UBS Australia chief economist, Scott Haslem, he believes the central bank wants to move as quickly as possible to re-establish more historically normal borrowing rates.
"The RBA's willingness to hike today, despite the recent softer data, suggests it remains focused on its positive medium-term outlook," Haslem stated.
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