Seeking to cool a growing economy, the Reserve Bank of Australia has increased interest rates from 3.75% to 4% in a move widely expected by experts.
As the only major economy to avoid recession (generally considered to be two consecutive quarters of negative growth), and the first to raise rates from 50-year lows as the economic crisis eased, it follows three consecutive rises at the end of 2009 but is the first rise for 2010.
Australia avoided the worst of the slump due to government spending and massive Chinese demand for its commodities.
The government had introduced a number of multi-billion dollar stimulus packages, including increased infrastructure spending and cash handouts to most Australians since the end of 2008 to lift consumer spending.
This move will put a greater squeeze on homeowners, and will make buying for first-time buyers increasingly harder as house prices continue to increase and indeed the median house price is now at $600,000 AUD, double the median a decade ago.
It is important to recognise that the Reserve Bank is not necessarily considering home lending when it makes its decisions, and instead places an emphasis on the activity surrounding the Australian dollar, which now buys US90c.
And things are likely to get even tougher with many more interest rate rises on the cards this year, with the RBA seeking to bring the economy to “average” levels, which is generally viewed to be around the 4.75 – 5% mark.
The next meeting of the RBA in April will very likely see another rise, particularly if there is another sharp drop in unemployment.