In a very disappointing announcement today the Reserve Bank of Australia increased official interest rates for the third month in a row by 0.25%.
Sighting a strong Australian and Asian economic recovery as its primary motivation, the RBA has moved to return Australian interest rates to more normal levels after having slashed them so aggressively last year when it also lifted rates against international trends.
Their overly optimistic view of the regional economies seems to be clouding their judgment despite the recent currency and stock market scare of the Dubai debt problem and a sluggish US & European economic outlook.
There was never any doubt that Australian interest rates would rise from the 50 year low levels of recent time, just the timing is in question. We are still enjoying some of the lowest interest rates in Australia’s history and with rent remaining strong and rising, the holding costs for investors remains on the lower end of historical trends.
With Christmas a matter of weeks away and now this is sure to put a cloud over each household as they were just coming to terms with the 0.25% rises in October and November.
The Australian property market is likely to continue its push upwards despite the rises as the driving factor is lack of supply rather than speculation and this is unlikely to be resolved in the near future.
The recent record births and migration numbers continue to emphasise the need to begin a stronger construction push to meet the demand, however this will not help the more popular areas where limited supply and improving demand should ensure above average property growth over the next two years.
The RBA will now break for the new year with its next meeting in February, so this will be that last rise this year and we will have two months to see how the markets react to the increased rate.
We had expected rates to rise around 1%, of which we have already seen 0.75% including the recent uplift, so we do expect a further rise in the new year. It would have been preferable to have staged the increases over a longer period, but the inevitability of the increase was never in doubt.
Click here to read the RBA Statement on the interest rate rise.
