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Where Australian interest rates are heading

by Marquette Turner

in Money & Business, Real Estate Radar

The Commonwealth Bank increased its interest rates this week, thus becoming the third of Australia’s banks to do so.

The cost of a standard variable home loan offered by the CBA will rise with immediate effect by 0.14% to 9.58%.

The Commonwealth Bank’s move comes after St George and BankWest raised rates on their standard variable home rates, but ANZ, NAB and Westpac have still to make their move.

The Reserve Bank of Australia kept the official cash rate on hold at 7.25% at its meeting earlier this month having increased its cash rate by 50 basis points since the beginning of 2008, in an effort to cool the economy from inflationary pressures.

Australian banks have thus far added between 40 and 60 additional basis points to cover the higher cost of funds and, according to critics, recoup profits lost to non-bank mortgage lenders in recent years.

For those home loan borrowers that are paying more off their mortgage than required, this buffer means that slight increases make little impact. Those that are not in such a fortunate position will, of course, need to tighten their belts even further.

There are, however, some positive signs ahead. The price of oil has been retreating this week, Australian inflationary pressures are cooling, so there may be only a few interest rises to go before we experience the peak. And, with consumer confidence at the lowest since in 16 years when, as it happens, interest rates were 17%, we are unlikely to suffer the experiences of the early 1990’s.

Michael Marquette

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