Interest Rate Calculation
The Reserve Bank of Australia officially lifted interest rates for the third consecutive month to 3.75 per cent. This new increase was implemented despite the fears about Dubai’s debt that can have a toll on the global economy. This is the largest interest rate hike since 1994 when the cash rate gained three percent in five months.
For the last three months, 75 basis points have been added to the official cash rate. This recent development means that $46 will be added to an average mortgage of $300,000. In contrary, the interest rate from April to October was at a 49-year-low 3 per cent.
RBA Governor Glenn Stevens announced in his policy statement that the new interest rate pushed through because of the recovering global economy. Stevens added that since the worst economic days have passed, the RBA board has decided to gradually decrease the monetary stimulus that was implemented during the crisis.
Stevens also added that this recent change will sustain economic growth and will keep inflation consistent. However, Treasurer Wayne Swan said that this latest rise will have a huge effect on the family budget. Swan also mentioned that in the long haul, rates will not stay within emergency low levels.
Meanwhile, Business SA thinks that the recent rise was done too soon. Business SA chief executive Peter Vaughan stated that this is not what businesses and consumers need during the Christmas season. He also claimed that the RBA should wait until the economy has stabilized before taking the spending money of consumers.
Vaughan added that this premature rise can take a toll on customer sentiment and it can reverse the plans to help families and businesses go through the economic downfall.
Due to this recent development, Westpac already announced a 0.45 per cent increase to their variable home loan rate, bringing it to 6.76 per cent. Other major banks are reviewing their rates to decide whether an increase is needed. Currently, ANZ has a 6.31 per cent rate while NAB and CBA’s is at 6.24 per cent.
