Home News Interest rate shocker - and another hike likely in December?

Interest rate shocker - and another hike likely in December?

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Borrowers were caught off guard this week when the Reserve Bank lifted the official cash rate by quarter of a percent, with some economists predicting another potential rate hike in December.
 
The RBA raised the cash rate to 4.75% – its first increase since May this year – adding 0.25% to variable mortgage rates. On an average $300,000 loan, this equates to around $50 per month or $600 per year.
 
The Commonwealth Bank was the first to move following the announcement, revealing that it would lift its standard mortgage rate by 45 basis points – almost double the RBA’s rate rise.
 
"The Commonwealth Bank have announced that as a result of continued increases in funding costs, we are lifting our variable home loan interest rates by 0.45 (percentage points), effective of Friday the 5th of November 2010," the CBA said on its website.
 
At the time of writing the other major banks, NAB, ANZ and Westpac, have yet to announce their intentions, with all three banks simply stating that their interest rates are under review.
 
Just last week, ANZ and NAB reported record full-year profits of almost $10bn between them, while CBA announced profits of almost $6bn in August.
 
Christopher Zinn, spokesperson for consumer group Choice urged other banks not to follow Commonwealth’s lead. "The CBA have thumbed their nose at the Government, the Reserve Bank and consumers to effectively say we are powerful enough to do this," he said.
 
Regardless of how the bank’s move, however, mortgage holders should brace themselves for more hikes in the coming months, according to some economists.
 
Stephen Roberts, chief economist with Nomura Australia, said the RBA was simply being pre-emptive with its rate rise as it was looking forward to growth in the economy over the next year.
 
Roberts believes there may be a further one or two rate rises in the next few months, with a December hike on the cards.
 
Meanwhile Kathy Lien, director of currency research at New York-based GFT, told Sydney Morning Herald’s Business Day that interest rates are likely to go up – but she predicts that will happen next year, rather than in December.
 
''Looking at the [Reserve Bank’s] statement, the fact that we saw the dip in the inflation number and the RBA acknowledged [that] consumers remained cautious and credit growth was subdued, indicates that they're much more focused by what's happening in the Chinese economy," Lien said.
 
"Although the RBA stopped short of saying that future rate hikes may be necessary, the hawkish tone of the statement and their expectation that inflation will rise again over the medium term suggests that more rate hikes will be announced in 2011.”
 
 
 
 

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