RBA Announces Interest Rate Rises

Today's interest rate rise by the Reserve bank of Australia by 25 basis points, to 6.5% sees official interest rates at their highest levels in 10 years.

Stronger than expected inflation figures in the June quarter, when prices rose an average 1.2% across the economy, have pushed inflation toward the upper-end of the RBA's inflation band of two to three percent and prompted the central bank to take defensive action.

"The high CPI outcome for the June quarter indicated a less favourable near-term outlook, with the implication that any further increases in inflation would take place from a higher starting point than previously envisaged" said Glenn Stevens, Governor of the RBA.

Mr. Stevens went on to say that "based on these considerations, the Board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term."

While Kevin Rudd described the rise as a "worrying development" for working-class families, Mr. Howard was quick to dismiss claims that the Liberal government was in any way responsible for today's rate rise. Instead Mr. Howard, speaking from Dili said that the rise was the result of those states running budget deficits, borrowing heavily to finance large infrastructure projects. It is this borrowing, Mr. Howard claims that is competing with private borrowers and pushing up rates.

Mr. Howard moved to point out that the latest rise would be offset by tax cuts and that the economy remained strong.

Some believe that the latest rise, the ninth consecutive rise since 2002 will put pressure on the government's re-election campaign. Mr. Rudd urged the government not to overspend in the lead up to the next election, stating that it was tax payers who would end up footing the bill.

This latest rise is the fifth rise since the Liberals retained power in the 2004 election, where they pledged to keep interest rates low. Repayments on the average mortgage will rise $60 per month as a result of the latest increase.

According to Craig James, Chief economist at Commsec, this latest rise will be the last this year and will lead to increasing pressures not only on home-owners, but on renters.

"The vacancy rate is super-tight at the moment, and this is going to put some upward pressure on rents. It's not just home borrowers who are going to be affected, renters are also going to be affected."

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Published on August 8-th, 2007 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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