Australian Interest Rates Rise Again

Submitted by Share Trading on 5 February, 2008 - 14:30

Australian interest rates rise again for the 11th time since 2002. The Reserve Bank of Australia (RBA) announced its decision to lift official interest rates today by 0.25 percentage points to 7 per cent following their meeting this morning. Governor of the Reserve Bank, Glenn Stevens, warned of "significant inflation pressures'' in the economy. "Inflation is likely to remain relatively high and will probably rise further in year-ended terms.'' The RBA thinks that global growth will be "below trend'' this year, having previously stated it would only slow to "about trend''.

Australian banks had also pushed up their interest rates earlier this year in response to higher funding costs because of the global credit crunch. ICAP senior economist Matthew Johnson said that the statement implied the RBA thought a significant slowing in demand was necessary in order to curb inflation, and they showed "little conviction that they've done enough''. "It's a very hawkish statement and I think they're a 50 per cent chance to raise rates again in March.

Commonwealth Bank has added

Commonwealth Bank has added extra sting to yesterday's 0.25 percentage point rate rise by the Reserve Bank by lifting the interest rate on its variable home loans by 0.3 percentage points. This is more than the Reserve Bank's 0.25 percentage point lift in interest rates yesterday and comes on top of a 0.1 percentage point lift in rates last month despite no action by the central bank.

"As a result of increased funding costs experienced by all Australian banks since August 2007, we increased our standard variable rate by 0.1 per cent per annum on January 9,'' CBA head of retail banking Ross McEwan said. "At the time we indicated that we should continue to absorb much of the increased cost in the belief that wholesale funding rates would moderate. "While this now takes the increases, outside of the official cash rate, to 0.15 per cent, we are continuing to absorb a significant portion of the additional cost being incurred,'' Mr McEwan said.