Homeowners slugged with new rate hike

The Reserve Bank of Australia has announced a rate hike of 0.

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25 per cent, taking the cash rate from 3.75 to 4 per cent.

Treasurer Wayne Swan warned banks against raising their interest rates any further than the cash rate, saying they had no need whatsoever to do so.

Homeowners could expect to pay just under $50 more a month on an average-sized mortgage due to the raised cash rate, the AAP reported.

RBA governor Glenn Stevens said despite recent interest rate rises, lending rates were still below average.

“The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average,” Stevens said in a statement on Tuesday.

The government’s economic stimulus had ensured the rate remained relatively low compared to that of other developed nations, and averted a recession, Swan told reporters after the RBA announcement.

He warned that the opposition may soon begin a ‘scare campaign’, but stressed that interest rates could not have remained static at 3.75 per cent indefinitely.

“Parts of the economy are still soft,” Swan told reporters after the RBA announcement, adding that the outlook for the resources industry was very good.

“The economy is beginning to grow again, and we are seeing signs of that,” he said.

He reiterated his disapproval of Westpac, which raised its interest rates by 0.45 per cent last December, 20 basis points above the RBA’s 0.25 per cent hike.

The decision came after a surprise announcement that the rate would remain static last month, but 40 per cent of economists surveyed expected it would now continue to increase, reaching 4.75 by December 2010.

In its statement, the RBA said a strong labour market and robust business expenditure were responsible for the hike.

“CPI inflation has risen somewhat recently as temporary factors that had been holding it to unusually low rates are now abating”, the statement said.

This was exactly as many economists had predicted before the announcement.

“A strong labour market and very robust business expenditure are all adding up to a very good dynamic for the domestic economy, which we don’t think the RBA will be comfortable in continuing to ignore,” Commonwealth Bank economist James McIntyre said on Monday.

Strong jobs and capital expenditure data in February had already prompted the central bank and many economists to revise up the chances of the first rate rise this calendar year.

The RBA raised the cash rate by 0.25 per cent each in October, November and December last year to the current rate of 3.75 per cent.

Mr McIntyre noted the 2010/11 capital expenditure figures by the Australian Bureau of Statistics (ABS) suggested a 20 per cent increase in business investment.

“Despite the fact that there was quite a stimulus boost to the December outcome through the commercial vehicles in particular and the equipment appreciation bonus … the expectations component of the capex was particularly strong,” Mr McIntyre said.

ABS figures showed new private capital expenditure rose 5.5 per cent, seasonally adjusted, in the December quarter, while the unemployment rate was a seasonally adjusted 5.3 per cent in January, down from an unrevised 5.5 per cent in December.

Total construction work rose 2.6 per cent in the December quarter in chain volume terms, seasonally adjusted.