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The Reserve Bank today raised official interest rates by a quarter of a per cent to 5.5 per cent. This marks the first rise in official interest rates since the end of 2003. The increase, which will be passed on by banks and other lenders, will add more than $30 a month to the average mortgage. The move was widely anticipated and is seen as an attempt by the Reserve to ensure inflation is kept under control and to keep the spending habits of consumers in check. It follows concerns that Australia's low unemployment rate, and a growing skills shortage, will lead to a breakout in inflation. The Reserve Bank is required to target inflation between two per cent and three per cent. The announcement comes on top of this week's disastrous current account figures, which hit an all-time record of $15.2 billion or more than seven per cent of gross domestic product. In a statement, the Reserve Bank governor, Ian Macfarlane, said there were a range of concerns on several fronts. He said with the Australian economy in its 14th year of economic expansion, spare capacity was becoming very limited which in turn was putting pressure on the labour and goods market. "This is now starting to result in stronger inflationary pressures,'' he said. "  rice increases at the producer level picked up appreciably at all stages of production during the second half of 2004."Consumer price inflation, although currently consistent with the target, was higher than had been expected, and is forecast to increase to around three per cent by the end of next year. "Continued pressure on raw materials prices, constraints on capacity and reports of higher employment costs, notwithstanding the steadiness to date of aggregate wage measures, constitute a risk that this forecast will prove to be too low.'' Mr Macfarlane said although Australian GDP slowed during 2004, this did not reflect any shortfall in domestic of global demand. He said domestic spending had remain strong while the global economy had grown at its fastest pace in more than a decade. "Conditions prevailing in Australia and abroad are likely to continue to encourage spending growth in the period ahead,'' he said. "The world economy is growing at a faster-than-average pace and world commodity prices are rising. "In Australia, there are high levels of confidence in both the business and household sectors, credit growth is providing ample support for spending, employment is growing strongly and national income and spending will continue to be boosted this year by the rising terms of trade. "In these circumstances, the Board judged that an increase in the cash rate was warranted in order to reduce the risk of an unacceptable rise in inflation in the medium term.'' HSBC chief economist John Edwards said there was no surprise in the RBA's decision to lift the cash rate. "The surprise would have been if they hadn't done it," he said. "We have been expecting a rate rise for some time. "We thought it would occur and the rationale of the bank that Australia is beginning to encounter capacity constraints is one that I think is right and we think this will be the first of two increases. "It is possible we will see the next one quite soon." Dr Edwards said capacity constraints were related to the increased risk that inflation might rise. "I think (the RBA) will be very reluctant to rule out, in public comment, further rate rises." AAP New mortgage repayments ready reckoner: LOAN MONTHLYREPAYMENTS EXTRA 100,000 727.32 16.07 150,000 1090.98 24.11 200,000 1454.65 32.14 250,000 1,818.31 40.18 300,000 2,181.97 48.22 350,000 2,545.63 56.25 400,000 2,909.29 64.29 450,000 3,272.95 72.32 500,000 3,636.61 80.36 550,000 4,000.28 88.40 600,000 4,363.94 96.43 650,000 4,727.60 104.47 700,000 5,091.26 112.50 750,000 5,454.92 120.54 800,000 5,818.58 128.57 850,000 6,182.24 136.61 900,000 6,545.91 144.65 950,000 6,909.57 152.68 1,000,000 7,273.23 160.72 Based on a 0.25 per cent rate rise to 7.32 per cent on a 25 year loan term. Source: infochoice.com.au |
