 Analyst forcast November rate rises
Economists agree that the Reserve Bank of Australia will raise official interest rates soon. However, the timing of the increases and the levels are up for debate.
Macquarie Bank interest rate strategist Rory Robertson is forecasting the first rate rise as early as November, with another to follow immediately after in December.
He says the strategy for the Reserve Bank will be to keep an eye on inflation. If the cash rate was to rise by 25 basis points in November, the official rate would rise from its current 49-year low of 3 per cent up to 3.25 per cent.
This increase if passed onto home owners would put an extra $40 on the monthly repayments of the average $300,000 mortgage. If another rise does follow in December, home owners will have to find around $80 extra on this loan amount.
"We've known for a while now that the RBA is keen to start removing its 3 per cent `emergency policy setting' at the earliest available opportunity, and November is looking increasingly firm," Mr Robertson said.
While nothing is certain, Mr Robertson says the possibility of consecutive rate rises at the of the year is a serious idea.
The latest figures on quarterly inflation are due to come out on October 28, a week before the RBA's next policy meeting. Inflation has eased to 1.5 per cent over the past year as the global financial crisis showed its effect here in Australia. The inflation number dropped to the 2-3 per cent inflation target band held by the RBA for the first time since September 2007.
Adam Carr, economist with ICAP said he expected an increase in December but not before. However, Reserve Bank governor said yesterday that a November rate increase could be a possibility.
The current low level of 3 per cent was created after the RBA consistently cut official rates during September 2008 through until April 2009. From the high's of 7.25 per cent, the cash rate has fallen 425 points.
Not all of these cuts were passed in to home owners. Most mortgage rates have fallen by around 4 per cent however, with average home loan rates falling from nearly 10% in September last year, to the current average standard variable rates of 5.75 per cent.
If official rates do rise by 25 basis points in November and another 25 points in December, lenders may choose to pass these increases on to borrowers raising standard variable loans to around 6.25 per cent.
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