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Reserve Bank lifts interest rates by 25 basis points to 3.75pc
Reserve Bank of Australia governor Glenn Stevens. Source: The Australian
THE Reserve Bank has delivered Australian homeowners a pre-Christmas interest rate rise, which is the first time the central bank raised rates three months in a row.
The decision to increase rates by 25 basis points takes the official cash rate to 3.75 per cent, and will add about $50 to the monthly repayment of an average mortgage.
The RBA declared Australians are in an economic sweet spot, with rising house prices and recovering stockmarkets.
In a statement, RBA governor Glenn Stevens said the board believed the increases to interest rates over the past three months would make the economic recovery sustainable and keep future inflation under control.
"Credit for housing is expanding at a solid pace, and dwelling prices have risen significantly this year," he said.
"Sharemarkets have recovered significant ground, which together with higher dwelling prices has meant a noticeable recovery in household wealth."
The cost of housing has become a major concern for the RBA, as the bank's officials have made a number of public comments that it thought property was overvalued in Australia.
Mr Stevens said the Australian economy was in strong shape compared to the rest of the world and growth in the year ahead should be close to trend, at 3 per cent.
"In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery," Mr Stevens said.
"The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand.
"Prospects for ongoing expansion of private demand, including business investment, have been strengthening. There have been some early signs of an improvement in labour market conditions.
"The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.''
The financial markets had expected the RBA to move today, after data published this week showed that the third-quarter GDP result should be stronger than expected.
The chance of a rate rise today had been judged as an 81 per cent prospect before the RBA's board decision was announced.
The Australian dollar sold off moments before the rates decision, down to US91.21c, but has rebounded since to US91.52c. The domestic equities market has shown little reaction, and is trading flat after the 129-point rise in the S&P/ASX200 index yesterday.
The RBA does not meet in January, and economists are now speculating whether the RBA could resume the tightening cycle when it sits in February.
Mr Stevens said the 75 basis point increase in the cash rate since October would aid the economy’s recovery.
"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," he said.
"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."
It is the first time since 2003 that the RBA has raised rates in December, and the first time ever that the central bank has delivered three consecutive increases in as many months.
Australia has become one of the first countries in the G20 group of industrialised countries to implement a tightening cycle of monetary policy since the global financial crisis broke out.
The major banks are now expected to pass on the full interest rate rise to customers.
The full extent of the first rate rise in October is starting to be seen, with a sharp drop in the number of building approvals for owner-occupiers in that month, data released today showed.
The report showed a 0.6 per cent fall, which surprised a market that had expected a 2 per cent increase.
The result for September, however, was upwardly revised to 5.1 per cent, from 2.7 per cent.
Citi economist Josh Williamson said the difference between the two months could be partially attributed to homebuyers rushing into the market in September to beat the changes to the grants for first-home buyers.
- UPDATE: Scott Murdoch
- From: The Australian
- December 01, 2009 3:30PM
Reserve Bank of Australia governor Glenn Stevens. Source: The Australian
THE Reserve Bank has delivered Australian homeowners a pre-Christmas interest rate rise, which is the first time the central bank raised rates three months in a row.
The decision to increase rates by 25 basis points takes the official cash rate to 3.75 per cent, and will add about $50 to the monthly repayment of an average mortgage.
The RBA declared Australians are in an economic sweet spot, with rising house prices and recovering stockmarkets.
In a statement, RBA governor Glenn Stevens said the board believed the increases to interest rates over the past three months would make the economic recovery sustainable and keep future inflation under control.
"Credit for housing is expanding at a solid pace, and dwelling prices have risen significantly this year," he said.
"Sharemarkets have recovered significant ground, which together with higher dwelling prices has meant a noticeable recovery in household wealth."
The cost of housing has become a major concern for the RBA, as the bank's officials have made a number of public comments that it thought property was overvalued in Australia.
Mr Stevens said the Australian economy was in strong shape compared to the rest of the world and growth in the year ahead should be close to trend, at 3 per cent.
"In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery," Mr Stevens said.
"The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand.
"Prospects for ongoing expansion of private demand, including business investment, have been strengthening. There have been some early signs of an improvement in labour market conditions.
"The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.''
The financial markets had expected the RBA to move today, after data published this week showed that the third-quarter GDP result should be stronger than expected.
The chance of a rate rise today had been judged as an 81 per cent prospect before the RBA's board decision was announced.
The Australian dollar sold off moments before the rates decision, down to US91.21c, but has rebounded since to US91.52c. The domestic equities market has shown little reaction, and is trading flat after the 129-point rise in the S&P/ASX200 index yesterday.
The RBA does not meet in January, and economists are now speculating whether the RBA could resume the tightening cycle when it sits in February.
Mr Stevens said the 75 basis point increase in the cash rate since October would aid the economy’s recovery.
"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," he said.
"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."
It is the first time since 2003 that the RBA has raised rates in December, and the first time ever that the central bank has delivered three consecutive increases in as many months.
Australia has become one of the first countries in the G20 group of industrialised countries to implement a tightening cycle of monetary policy since the global financial crisis broke out.
The major banks are now expected to pass on the full interest rate rise to customers.
The full extent of the first rate rise in October is starting to be seen, with a sharp drop in the number of building approvals for owner-occupiers in that month, data released today showed.
The report showed a 0.6 per cent fall, which surprised a market that had expected a 2 per cent increase.
The result for September, however, was upwardly revised to 5.1 per cent, from 2.7 per cent.
Citi economist Josh Williamson said the difference between the two months could be partially attributed to homebuyers rushing into the market in September to beat the changes to the grants for first-home buyers.
