Official interest rates rise as predictions of bank action

5 November 2009

Bank rates have already climbed another .25 basis points to match the Tuesday increase by the Reserve bank of Australia, as bank customers prepare to budget for the higher rates attached to their loans.

The big four banks were quick to react to the Reserve Bank announcement with all four bank rates rising to the official rate of 3.5 per cent. The rise of .25 points was almost welcome relief for many bank customers after economists had predicted a steeper rise of 0.5 points by the Reserve Bank, who released a statement quoting its confidence in the recovering Australian economy.

The increase announced this week is the second consecutive increase by the Reserve Bank, a move that hasn't been seen since March 2008. Speculation has already begun as to whether an unprecedented third rise will occur in December or whether the bank will wait until the next meeting in February.

In monetary terms, this latest interest rates rise will see homeowners of a typical $300,000 home loan pay around an additional $46 per month, which when combined with last month's increase sees monthly loan repayments rise by $100 since September. However, before bank customers begin to panic this is a great deal lower than this time in 2008 when repayments were hundreds of dollars higher.

The Federal Government have supported the actions of the central bank but have thoroughly warned banks of getting ahead of the official interest rate. However, the increases are seen as an indicator of the recovering economy.

"But I think it is also another indication that rates could not stay at 50-year emergency lows for ever," Federal Treasurer Wayne Swan said.

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