The Reserve Bank lifted interest rates by 0.25% to 4.25% and signalled that there’s more in store.
It’s been a message the central bank has been pushing since late last year.
Despite signs of soft demand in February, the central bank lifted rates for a second successive month, to make five increases in total since it started tightening monetary policy from the emergency level of 3% last October.
"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," Governor Glenn Stevens said in the usual post-meeting statement yesterday afternoon.
Some economists had thought the central bank might not lift rates because of the weaker than expected retail sales and building approvals for February.
But house prices, especially in more expensive suburbs, continue to rise and Governor Stevens last week went out of his way to warn people against thinking there were easy gains to be made by investing in property.
"Interest rates to most borrowers nonetheless have been somewhat lower than average, he said in yesterday’s statement.
"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.
"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 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."
The Commonwealth Bank was the first to move with a 0.25% rise in its standard home loan rate.
From this Friday, the CBA’s variable mortgage rate will increase to 7.11% from the current rate of 6.86%.
Deposit rates on CBA’s online savings and business account will also increase by 0.25%
Other banks have all followed with rises of 0.25%.
Westpac’s standard rate is now the highest at 7.26%, the NAB is the only one under 7% at 6.99%.
