Wednesday, April 07, 2010

Another 0.25% to the interest rates

Hi InsideStory readers

Well there you go, another 0.25% to the interest rates taking the cash rate to 4.25%.

The reality is that property activity has increased so fast and so aggressively on the East Coast of Australia that there would be some nervousness as to where this was all heading.

Adelaide has done what Adelaide does so well, steady and stable.

With Mad March and Easter 2010 behind us expect an explosion of new release properties over the coming weeks if Toop&Toop stock levels are an indication. Property is all about confidence, and supply and demand. If confidence remains high and supply increases from next weekend we will see discerning sales to property owners who have correctly priced their properties.

Here is the media release from the Reserve Bank.


Media Release
6 April 2010
For Immediate Release
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to raise the cash rate by 25 basis points to 4.25 per cent, effective 7 April 2010.
The global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still hesitant in the major countries, due to the continuing legacy of the financial crisis, resulting in ongoing excess capacity. In Asia, where financial sectors are not impaired, growth has continued to be quite strong, contributing to pressure on prices for raw materials. The authorities in several countries outside the major industrial economies have now started to reduce the degree of stimulus to their economies.
Global financial markets are functioning much better than they were a year ago and the extraordinary support from governments and central banks is gradually being wound back. Credit conditions remain difficult in some major countries as banks continue to face loan losses associated with the period of economic weakness. The concerns regarding some sovereigns appear to have been contained at this stage.
Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector. Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing. The rate of unemployment appears to have peaked at a much lower level than earlier expected. The process of business sector de-leveraging is moderating, with the pace of the decline in business credit lessening and indications that lenders are starting to become more willing to lend to some borrowers. Credit for housing has been expanding at a solid pace. New loan approvals for housing have moderated over recent months as interest rates have risen and the impact of large grants to first-home buyers has tailed off. Nonetheless, at this point the market for established dwellings is still characterised by considerable buoyancy, with prices continuing to increase in the early part of 2010.
Inflation has, as expected, declined in underlying terms from its peak in 2008, helped by a noticeable slowing in private-sector labour costs during 2009, the rise in the exchange rate and the earlier period of slower growth in demand. CPI inflation has risen somewhat recently as temporary factors that had been holding it to quite low rates are now abating. Inflation is expected to be consistent with the target in 2010.
With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate.
Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.
Dr Philip LoweAssistant Governor (Economic)Reserve Bank of AustraliaSYDNEYPhone: +61 2 9551 8800
Dr Guy DebelleAssistant Governor (Financial Markets)Reserve Bank of AustraliaSYDNEYPhone: +61 2 9551 8200
Media OfficeInformation DepartmentReserve Bank of AustraliaSYDNEYPhone: +61 2 9551 9720Fax: +61 2 9551 8033E-mail:


Anthony Toop, Managing Director.

© Toop Real Estate Group


Dee said...

From Sunday Telegraph April 11 - MORTGAGE rates are predicted to hit a horror 10 per cent within the next two years as the Reserve Bank hikes rates to prevent runaway inflation. Leading economists say soaring commodity prices and rapidly rising employment are stoking dangerous inflationary pressures that the RBA is determined to stamp out. As a result, economists at Macquarie Bank and Commsec, the Commonwealth Bank's investment arm, have both forecast the cash rate will hit "pre-crisis highs" of 7.25 per cent by 2012 if the economy continues to perform so strongly. Since banks have expanded their profit margins during the financial crisis, that translates to variable mortgage rates of 10.1 per cent - the highest since 1996. Others warn the flood of first-home buyers - lured in by generous government incentives - will struggle so badly, they will be forced to sell, leading to a rapidly deflating property market. AMP chief economist Shane Oliver said such high rates would lead to a big rise in delinquencies, and prices would fall by around 10 per cent.

Anthony Toop said...

Double digit intereset rates would not be ideal so let's hope inflation is in fact kept at bay by the current round of increase of rates. The silver lining with inflation is that existing debt is essentially eroded away. AT