RBA decision: Rates up by 25bps

by BN06 Oct 2009

The RBA has today raised rates for the first time since March last year, pushing up the cash rate by 25bps to 3.25%

The new rate will kick in on 7 October with all lenders expected to follow suit and push up mortgage rates.

Explaining the decision, RBA governor Glenn Stevens said the global economy was resuming growth while economic conditions in Australia have been stronger than expected and measures of confidence have recovered.

However reaction to the news was far from congratulatory.

The Housing Industry Association (HIA) said the increase in the official cash rate would do nothing to alleviate the chronic undersupply of new housing in Australia,

"There is a big risk that the increase in official rates will blunt consumer and business confidence that is crucial to the prospects for an economic recovery,” commented Dr Harley Dale, HIA Chief Economist.

“Although there are some encouraging signs the economy has avoided falling off a cliff, it is still far too early to call an economic recovery.

He warned that the increase would "hamper recovery in rental investment, which has been a missing ingredient for a more broadly-based recovery in housing activity".

A similar sentiment was expressed by the Real Estate Institute of Australia (REIA), which urged "caution" regarding further rate rises.

REIA president David Airey said that despite signs of economic recovery in Australia from the effects of the GFC, "we should be wary not to slow economic growth by increasing interest rates prematurely".

COMMENTS

  • by Sufferer 6/10/2009 5:57:27 PM

    It is too early to increase the interest rate by RBA. In the past when RBA has reduced the half a percent cash rates Banks have not passed on that full reduction to the borrowers. This time Bank should absorb some part as well.

  • by Old Hand 7/10/2009 10:21:08 AM

    The banks supporting their customers? HA HA HA.

  • by Accountant 7/10/2009 2:31:36 PM

    Wait until the investment allowance stops in December. We will have economic tumbleweeds rolling around Australia.