This time round, sadly, the Reserve Bank hasn’t surprised us: at this morning’s March meeting the powers that be announced that they would be raising the official cash rate by 25 points to 4.0 per cent, effective from tomorrow. After the surprise announcement in February that the cash rate wouldn’t rise – despite pretty much everyone in Australia being certain it would – the Reserve Bank has continued with the expected trend of having several rate rises during this year and now we’re going to have to start paying a bit more on our mortgages.
The main reasons for the Reserve Bank decision to increase rates seem to be related to a growth in retail sales – we’re spending more, so that must mean we’ve got some spare cash around (but doesn’t necessarily mean we want to give it to the bank!) – the unemployment rate is much lower than expected, and globally, economic conditions are on the whole improving. They say that this interest rise will “ensure stability” in the Australian economy, which is no doubt a good idea. I just don’t enjoy it hitting my own back pocket!
Of course, the next thing to watch is how the banks react to the Reserve Bank announcement. It looks like the Commonwealth Bank has been the first to increase their rates with the standard variable loan rate on a mortage going up by a quarter of a per cent, the same margin as the Reserve Bank decision, to 6.86 per cent. The ANZ Bank and St George Bank have also both already announced their rate rises, also by a quarter of one per cent. It seems likely that all the major banks will follow, although it will be interesting to see if any of them dare to raise their rates by more than the margin suggested by the Reserve Bank – we should know about all of that by the end of the week.
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