Federal Treasurer Wayne Swan has said the RBA’s increase in interest rates would be tough on families and small business.
The RBA has raised the official interest rate by a quarter of a percentage point, to 4.5 per cent.
Analysts said the move, aimed at keeping inflation in check, would add around $45 to the monthly repayment on a $300,000 mortgage – if passed on in full by the banks.
The Commonwealth bank, Australia’s largest lender soon followed suit, increasing its complete home loan variable rate by a quarter, to 7.36 per cent, as did the NAB and Westpac.
It was RBA’s sixth rate rise in the past eight months, and now sees the rate hit its highest level since the end of 2008
”The Board expects that, as a result of today’s decision, rates for most borrowers will be around average levels,” RBA governor Glenn Stevens said in a statement accompanying today’s decision.
The Bank was widely tipped to raise the official interest rate by a quarter of a percentage point, or 25 basis points, taking the official cash rate up from 4.25 per cent. Some observers, however, thought fear over the European debt crisis might mean the bank held rates firm.
Prior to the announcment, it was expected that a sharp increase in house prices was likely to have an impact on the RBA board.
House prices in the country’s capital cities rose by an average of 20 per cent in the past year, making it one of the biggest surges in more than two decades.
Analysts told Sky News it was now likely that the RBA would not be making a change next month, while an ANZ spokesman said that the market had ‘taken it in its stride’, and that the cash rate would peak a percentage point higher than its current position.
Swan: Tough for families
Wayne Swan said it would be tough for families, but said there’s no way around it.
“Unfortunately this is one of the difficult consequences of an economy that is recovering better than other advanced economies,” Mr Swan told reporters in Canberra on Tuesday.
“But as the Reserve Bank itself has observed today, rates (have) returned to normal levels.”
He said, as the RBA noted, that for many people with mortgages they are still significantly below where they were at their peak.
He said the RBA’s decision did not put any further pressure on him to deliver a tight budget, saying it would be a “no frills budget”.
Mr Swan will hand down the 2010/11 budget next Tuesday.
The United Retail Federation soon added that it would be tough for retail, struggling to come out of the economic downturn.
“Clearly, the RBA have their heads buried in economic textbooks and are totally unaware of how tough a time it is at the moment for small business and the retail sector,” URF national president Scott Driscoll said in a statement.
“This rate hike will cost thousands of jobs.”