Turn Your Back to Watch a Horse Race and the RBA Lifts Rates!

“Reserve Bank Surprises with Cup Day Rise” Article from www.abc.net.au by Michael Janda

The Reserve Bank has raised interest rates on Melbourne Cup Day for the fourth time in five years, taking the official cash rate to 4.75 per cent.

Despite the fact the RBA has moved rates on the first Tuesday every November for the past five years (four times up, one time down), economists were generally surprised by the decision.

Seventeen out of 24 economists surveyed by Bloomberg had expected the official cash rate to stay on hold this month, although many acknowledged it would be a lineball decision.

The RBA increased rates by 25 basis points, despite last week's consumer price figures for the September quarter from the Bureau of Statistics showing both headline and underlying inflation well within the bank's 2-3 per cent target.
House price indices from the Bureau and RP Data both also showed home values remaining largely static over the three months to September.

Attention now turns to how much the retail banks will raise home loan rates by.
Current standard variable mortgage rates are between 7.24 (NAB) and 7.51 per cent (Westpac), and if they pass on only the 25-basis point official increase it would add around $49 to monthly repayments on a $300,000 mortgage on a 25-year term.

However, major bank chief executives have consistently repeated warnings that higher funding costs mean home loan interest rates will need to rise relative to the official cash rate.

More to come.