It’s official: the Christmas interest rate rise pretty much the whole of Australia was expecting came through in last week’s Reserve Bank announcement. From 2 December 2009, the official cash rate was raised by 25 basis points to 3.75 per cent, just as anticipated.
The Reserve Bank mentioned a few key reasons for the rate rise, all generally based on the return of the Australian economy, and to some extent the global economy, to something like normal. For example, they said that the unemployment rate is now expected to go nowhere near as high as feared, and that the inflation rate in Australia is now returning to normal too. With home loans expanding and evidence that the price of housing has also increased in the past year, along with the fact that the share market has regained a lot of the ground it lost in this past year, the Reserve Bank painted a pretty rosy picture of the Australian economy.
What’s happened since the rate announcement has been a little more than expected – and not necessarily in a good way. Westpac was the first bank to make any moves after the Reserve Bank announcement and they shocked everyone by raising their variable mortgage rate by almost double the Reserve Bank rise – by 45 basis points. Claiming a volatile funding market and having to pay higher rates to term deposit holders, Westpac came out strongly to justify their rate hike, and also claimed that their customer base has increased at a faster rate than other banks over the last year, so higher rates aren’t a problem.
After Westpac’s hefty increase, two of the other major banks also raised their rates by more than the Reserve Bank’s figure, with the Commonwealth Bank going up 37 points (6.61 per cent) and ANZ lifting their variable rate by 35 basis points (to 6.66 per cent). Only NAB matched the Reserve Bank’s 25 point rate rise and their variable rate now stands at 6.49 per cent.
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