RBA pushes up rates for third straight month

By BN | 01 Dec 2009

The cash rate will rise to 3.75% tomorrow following today's meeting of the RBA monetary policy committee, the third consecutive 25bps rise since September

Earlier today brokers said they expected the cash rate to rise, though they were hoping for a reprieve due to the fragile state of the world economy (in light of the Dubai debt crisis), Xmas sales concerns and to give the previous two rate rises the opportunity to have some kind of effect.

The news will also disappoint Aussie, with John Symond urging the RBA last week not to lift rates.

Commenting on today's decision, RBA governer Glenn Stevens said: "The Board’s assessment of the outlook remains much as in the November Statement on Monetary Policy. Growth in 2010 is likely to be close to trend and inflation close to target.

"With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. These material adjustments to the stance of monetary policy will, in the Board’s view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."

Related stories:

Decision time: Brokers expect RBA to push up rates - The consensus among brokers contacted by Broker news is that the RBA will raise rates by 25bps today, however the sentiment is against an increase

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Commented by: SteveL at 01 Dec 2009 02:44 PM
Criminals......just Criminals!

Commented by: Broker at 01 Dec 2009 03:14 PM
Glenn Stevens ....AKA the Grinch that just stole Christmas! Obviously they seem to forget that the majors are still gauging about 1.0% or more in interest rates versus their margins about 2 years ago, gone forever , never to be seen again, except on the banks bottom line..

Commented by: Jo at 01 Dec 2009 03:16 PM
Thanks for the lovely Xmas present RBA. Just what we all needed. NOT!!!!!!! What is going to happen in 3 months time when the current figures role in??

Commented by: Broker at 01 Dec 2009 03:32 PM
Glenn Stevens...AKA the Grinch that just stole Christmas!! Do the RBA recall that the majors age still gauging about 1.00% over and above what they were 2 years ago, it wouldn't appear so. Might be time for some of that to be given back to their customers, but alas we know that is gone never to be seen again , other than on the banks bottom line..

Commented by: BBB at 01 Dec 2009 03:33 PM
Oh Dear , as usual the RBA cannot wait for two months to see if an increase in the official cash rate has had an effect. Can just see the retailers and home loan builders , as well as developers just overjoyed withnthis knee jerk increase.

Commented by: Broker at 01 Dec 2009 03:43 PM

In addition , I would bet that the 1st quarter of 2010 will be negative, and the second may well be the same.

What to do then RBA , admit that you pulled the trigger to early and then do nothing for the forseeable future.

I am far from convinced that the middle and lower end of the economy is doing anywhere near as well as they say it is, perhaps the top 10% of our wealthly are distorting the real story behing these figures..

Commented by: Joe the plumber at 01 Dec 2009 03:58 PM

There are always exciteable responses to an RBA increase, but lets get some perspective. The huge RBA cuts in the last 12 months were a once in a lifetime emergency response to a GFC that didnt end up hurting Australia as badly as expected. What would you rather they do? slowly return rates to a sensible, sustainable level? Or leave them too low and allow this housing price bubble to get out of control? They slashed them when necessary, now its time for them to go back to normal levels. Its only 3.75%. Its still WAY below rates of 12 months ago. It's not something to be complaining about.

Commented by: Plumber''s Mate at 01 Dec 2009 04:17 PM

I agree with Joe in so much that the RBA is simply arresting the current Goverments enthusiam to 'stimulate' the economy (which they should have assessed better rather than adopt the empty the cookie jar mentality that the Krudd Government has). Those crying that Xmas will be so sad, really need to get a grip on themselves. Some people (including the RBA) think a little longer than today only. However, it is disappointing that the banks will yet again gain out this. Maybe this time they could take a little less of the RBA increase rather than the full amount or even more as in the past.

Commented by: TC at 01 Dec 2009 04:32 PM
Westpac 0.45% up. Shakes head in disgust

Commented by: DavidinSweatyQld at 01 Dec 2009 05:17 PM

I think this is now overstepping, and in keeping with previous Glenn Stevens management. Two years ago, the rises were too much, too quickly, for too long.

Essentially, piling on straws without waiting to see how the camel adjusted.

I don't think GS has the "fine touch" and ability to "jawbone the market" like Ian MacFarlane did.

BTW, Alan Greenspan did the same in the opposite direction-too low, too quickly, for too long.

The market is just too big for any single element or functionary to dramatically and/or quickly influence, but as they say: "Politicians and bureaucrats either do nothing or overreact!".

Announcements travel at the speed of light, but changes evolve subject to individual human considerations. Should have waited til Feb-still fragile.

Commented by: broker at 01 Dec 2009 05:37 PM
agree with Joe....lets get a grip here ....we are still in record low rates ....christmas, easter...some people always have an excuse !!!

Commented by: Kevin at 02 Dec 2009 12:47 PM

I think the point about interest rates being a good 100 basis points higher now than they were before the GFC is a good one. Effectively the RBA rate is now 4.75%, not 3.75%. Just one 25 basis points rise away from what the RBA calls neutral territory. Whether neutral is the correct setting currently is another story.

Hopefully with Westpac's extra 20 basis points the non banks become more competitive which will help to restore competition in the market to lower rates overall, however that will take some time.

The housing bubble is not being caused by low interest rates, it’s a supply/demand issue. Not enough supply for a population that's growing far above trend. Funny enough, raising interest rates is going to have the opposite effect of what the RBA wants. House prices are going to increase, not decrease. You only have to look at the drop in construction work just published. More work needs to be done at a local level to increase supply. Unfortunately, we have local councils dictating supply which is turning out to be a national issue.

What I can’t get over is in this day of credit derivatives, multiple finance options and technology, the one independent body in this country given the task of managing inflation (or by default a good part of the economy) is only given one clumsy way to manage, raise or lower interest rates. Anyone else think that is just dumb?

Commented by: Ron WA at 02 Dec 2009 04:31 PM
Can someone explain to me the need for our official rate to be set high? Look at the World Interest rate tables and compare. We are the highest of developed countries, even NZ is still back at 2.5% and stable since April!! Gleen Stevens is just too reactionary, evidenced by the wildly fluctuating rates in his time. Time for some more conservative ecos in the RBA if you ask me.

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