RBA Lifts Rates By 0.5%

Following a decision by the Board at Tuesday’s meeting the RBA has acted in the money market to increase the cash rate by 0.50% to 5.50%.

This rise of 0.50% was greater than what most analysts had predicted, however it has only brought forward the inevitable by a couple of months.

In a statement announcing the decision the RBA described the move as being “pre-emptive in that it has occurred before overheating has emerged, and its aim is to prevent that eventuality from occurring”. It went on to advise that the Australian and indeed the world economy had strengthened more than anticipated and that this would continue through 2000. Locally, household spending had been particularly robust, buoyed by strong employment growth and increasing house prices. All this pointing to increasing inflation to the top end of the target zone (2-3%) and concerns of pressures for higher wage demands.

None of this comes as any surprise and indeed the rise of 0.5% as against the expected 0.25% will probably be welcomed by the markets as it has removed a degree of uncertainty and enabled the RBA to state that it has moved monetary policy to a neutral stance.

For borrowers the news is not great with the average 25 year $100,000 home loan now going to cost an extra $1 per day. We expect lenders will pass on the full rise of 0.50% as soon as they can. To check out your new repayments go to the calculators section of www.bankchoice.com.au or have a look at the snapshot table following this article.

Conversely, for depositors the news is good, so long as the rise is also passed on in full by deposit taking institutions and not used as a tool to increase margins. We don’t think this is likely to happen given the level of scrutiny the industry is under and the strong competition for customer deposits.

With July tax cuts, the GST and the Olympics there is no shortage of growth stimulants in the short term and if the latest rate rise, probably coupled with another of up to 0.50% by the end of the year, can keep the inflation monster under control then expect the economy to continue to bubble along for quite awhile yet.

Home Loan Repayments for $80,000 Loan over 25 Years @ 7.30%
Interest Rate Weekly Fortnightly Monthly
7.30% $133.96 $267.92 $580.83
6.80% $128.06 $256.12 $555.26
Increase: $5.90 $11.80 $25.57
Home Loan Repayments for $100,000 Loan over 25 Years @ 7.30%
Interest Rate Weekly Fortnightly Monthly
7.30% $167.45 $334.90 $726.03
6.80% $160.08 $320.16 $694.07
Increase: $7.37 $14.74 $31.96
Home Loan Repayments for $120,000 Loan over 25 Years @ 7.30%
Interest Rate Weekly Fortnightly Monthly
7.30% $200.94 $401.88 $871.24
6.80% $192.09 $384.19 $832.89
Increase: $8.85 $17.69 $38.35
Home Loan Repayments for $140,000 Loan over 25 Years @ 7.30%
Interest Rate Weekly Fortnightly Monthly
7.30% $234.43 $468.86 $1,016.44
6.80% $224.11 $448.22 $971.70
Increase: $10.32 $20.64 $44.74
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