Waiting for the (almost inevitable) Christmas interest rate rise

Amanda Kendle | 01-12-2009

The Reserve Bank is getting ready to, by all accounts, give us an un-Christmas present later on today. Like we suggested a couple of weeks ago, an interest rate rise in December looks like something no smart money would bet against.

While we won’t know for sure until the middle of Tuesday afternoon whether or not the Reserve Bank has decided to raise interest rates, apparently many Australians are already planning for an interest rate rise. According to a survey written up by the Sydney Morning Herald, more than half of the respondents (56%) claimed that because of the likelihood of interest rate rises on their mortgage, they were already planning to scale back their spending on Christmas gifts and the holiday season in general. Apparently, one in three people intend to put extra money into their mortgage repayments or credit card debt over the holiday season too, and you might want to check around to find out if your family and friends belong to the one in seven respondents who said they would be asking for gifts of money instead of material items.

The likely interest rate rise to come out of the Reserve Bank meeting is another 25 basis points, according to most commentators, which means the cash rate would rise to 3.75 per cent. Judging on their recent behaviours, it would look likely that the major banks will pass on the same quarter of a per cent rise, and that will mean nearly $50 a month more to pay on the average mortgage of $300,000. The sentiment around the place is that this won’t be the last rate rise, either, so plenty of mortgage holders, or those looking to sign up for a new mortgage soon, will be realising they have to tighten up their spending over a time of the year when we traditionally go a little crazy at the cashier.