Reserve Bank’s sixth interest rate hike since Oct-09

On 4 May 2010, The Reserve Bank again lifted its cash rate in a string of six rate rises since October 2009. The increase by a quarter of a percentage point takes the official cash rate to 4.5 per cent, its highest level since the end of 2008. The move was tipped by a majority of economists after surges in consumer price inflation and house prices in the March quarter.

The Commonwealth Bank was the first to respond, announcing its standard variable mortgage interest rate will rise 25 basis points to 7.36 per cent from Friday. The NAB, ANZ and Westpac followed suit, with their published standard variable mortgage interest rates now published at:

Commonwealth Bank:  7.36%
Westpac Bank:  7.51%
National Australia Bank: 7.24%
ANZ:  7.41%   

''The (RBA) Board expects that, as a result of today's decision, rates for most borrowers will be around average levels,'' RBA governor Glenn Stevens said in a statement accompanying the decision.

The RBA cited increasing demand flowing into the economy from the reviving mining boom as part of the reason behind today's rate move. It hinted, though, that it may take a breather to monitor the effects of the string of six rate rises since October.

Even if the RBA does hold off in June, the pause may only be temporary as the central bank adjusts to a higher inflation rate than it had been tipping. Its own inflation gauge remained just above its 2-3 per cent target range at the end of March - even before the economy's recovery hits full stride.

Signs of a strengthening domestic economy include a falling unemployment rate and rising prices, particularly on the home front. House prices jumped 20 per cent in capital cities in the year to March, the biggest jump in 20 years, the Australian Bureau of Statistics reported yeseterday. See the latest ABS House Price Indexes here.

This latest interest rate rise marks the sixth increase since October. The string of rate hikes - broken only by the summer break in January and February's pause - is aimed at discouraging excessive borrowing as economic growth returns to more normal levels.

Before today's rates verdict, investors were pricing in at least four interest rate increases over the next 12 months, which would bring the RBA's cash rate - the starting point for banks when they calculate standard variable and other lending rates - to 5.25 per cent.

Read the Reserve Bank’s statement here.

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