The housing industry has expressed concern over the Reserve Bank of Australia’s move to lift the official cash rate by 25 basis points to 3.25 per cent, at it’s board meeting today.
In a statement released shortly after the move, the Reserve Bank Governor Glenn Stevens said that housing credit has been solid and dwelling prices over the last six months had continued to rise.
The rate rise which is the first since March 2008, makes the Reserve Bank the first central bank in the G20 to raise interest rates in the wake of the global financial crisis.
“In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however,” Mr Stevens said.
“With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy.”
In contrast, Housing Industry Association chief economist, Harley Dale, said there was concern that the rate rise could hurt consumer confidence and thereby hold back a housing recovery.
“There is a big risk that the increase in official rates will blunt consumer and business confidence that is crucial to the prospects for an economic recovery,” Mr Dale said.
“Although there are some encouraging signs the economy has avoided falling off a cliff, it is still far too early to call an economic recovery.
“Indeed, it was not that long ago we were told that Australia faced the worst economic conditions since the Great Depression. Either that assessment was a dramatic overstatement or the Reserve Bank has miscalculated.
“To date, the initial pick-up in new housing activity has been influenced by the combination of lower interest rates and the First Home Owners’ Boost. Now these key drivers are in reverse.
The rate rise could mean an extra $45 a month on the average $300,000 mortgage – on a 25-year loan term.
