Paul Denver's Blog

More rate rises on the RBA agenda!

NAB has said the Reserve Bank will raise interest rates 25 basis points in every board meeting until March.

According to the bank’s latest monthly business survey and economic outlook, the official cash rate should climb to 4.25 per cent by early 2010.

NAB’s chief economist Alan Oster said growing consumer confidence and an improvement in business conditions had increased the likelihood of another 25 basis point increase before Christmas.

The business conditions index surged nine points over the last month to a reading of +12, which is substantially above the long run average reading of +3 index points.

“While confidence has surged in recent times, business conditions had remained significantly below long term averages. That has now changed. In many ways, very high business confidence readings appear to be bearing fruit,” Mr Oster said.

“This is a pleasing result and as such, we expect there to be a 25 basis point increase in every RBA meeting till March.”

Source: Realestate Business online

The rate rise that was always on the cards!

The Reserve Bank has lifted the official cash rate by 25 basis points to 3.50 per cent.

The rate hike is the second 25 basis point increase in as many months, after the Reserve Bank decided to raise rates last month for the first time since March 2008.

Raine & Horne’s chief executive officer Angus Raine said the rate rise would have little to no effect on the market.

“It was probably the worst kept secret, everyone knew rates would increase so they were able to factor it into their average monthly repayments, some time ago” Mr Raine told Real Estate Business.

“A 25 basis point increase will have no real impact on a borrower’s bottom line. Demand for housing has been steadily increasingly since Easter this year and this rate hike will not serve to dampen that demand.”

The twenty five basis point rise from the Reserve Bank will now take the average variable rate to 6.3 per cent, well below the 9.6 per cent peak recorded in July and August last year.

Source: Real Estate Business online.

Banks to raise rates above RBA!

Higher funding costs may force the big four banks to increase their rates beyond the official cash rate.

According to a report in The Sunday Telegraph, the National Australia Bank (NAB) revealed that the costs of short term funding will increase by between 0.10 add 0.20 over the next six months, which, if passed on in full, would add up to $40 a month on the typical $300,000 mortgage – on top of the RBA rate rises.

Over the weekend, Westpac’s retail and business banking group executive Peter Hanlon  also confirmed that lending rates could outpace rises in the official rate due to increased funding costs.

"The pressure on every single one of those (RBA) decisions is for us to actually increase rates by a higher amount,'' he told the Telegraph.

"Any (mortgage) interest rate increases will be based not on what the RBA does but on how our funding costs are going.''

RBA pushes rates up 25bp

The Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points this afternoon, making Australia the first developed nation to reverse the cycle of rate cuts triggered by the global financial crisis.

The 25-basis-point rise pushes the central bank's cash rate to 3.25 per cent.

RBA governor Glenn Stevens said the increase was as a result of Australia’s continuing growth.

“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,” he 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.”

RP Data’s director of property research, Tim lawless, said it was only a matter of time before interest rates rose from their ‘emergency lows’ and most property owners should have planned for rates to rise as part of their budgetary process.

“The start of the interest rate tightening cycle is not likely to have a dramatic affect on the domestic property market as mortgage rates remain well below the 20 year average of 8.8 per cent,” Mr Lawless said.

“Once there have been several successive rises and mortgage rates approach 7 to 8 per cent there is likely to be a dampening of demand, particularly at the affordable end of the market where affordability pressures are most sensitive.”

Source: Real Estate Business online

Bank rates critical in property recovery!

As the first home owners grant boost starts to phase out, the banks may determine whether the current property market revival can be sustained, according to First National.

“With prices stabilising and consumer confidence high, the only thing that could stop the recovery continuing and strengthening, would be the banks increasing their variable rates either with, or ahead of, the Reserve Bank increasing their rates,” First National’s chief executive officer Ray Ellis said.

In August, banks were quick to raise the fixed rates ahead of the reserve bank’s announcement it would hold interest rates until at least early in 2010.

But as pressure mounts on governments to rein in their support of the banks, there is speculation the banks will increase their rates early to offset any potentially negative impact from this move.

Mr Ellis said if first home buyers stop buying, there is potential for the emerging property recovery to stop or even reverse unless other market segments are stimulated.

“There are signs throughout our network that second and third home buyers, including investors, are taking advantage of current conditions, helping push prices up as they go,” Mr Ellis said.

“But, the threat of rising interest rates may impact on this promising trend.”

Since the grant and boost were introduced in September last year, more than 59,000 Australians have taken advantage of the highest levels of housing affordability since 2002.

Banks may increase the variable rates before the RBA!

Variable interest rates may rise by 0.15 per cent before the RBA lifts its cash rate, a new study has warned.

According to the financial comparison website RateCity, variable rates are expected to rise in the near future as the costs of funding continue to increase.

“The best indicator of what rate banks are paying to borrow their funds is the 90-day Bank Bill Swap Rate, and this has risen from 3.36 percent to 3.45 percent in the last couple of weeks alone,” RateCity’s chief executive officer Damian Smith said.

The big four banks have not moved many of their key variable rates for up to seven months, indicating the time for a rate rise is now.

“If the big four banks lift their rates, this will impact about 90 percent of Australians with a variable home loan,” Mr Smith said.

RateCity expects the current average standard variable interest rate of 5.5 percent per annum to rise to 5.65 percent before the end of the year.

Source: Real Estate Business.

Interest Rates to hit 5% before 2011!

The official cash rate will hit 5 per cent before the end of 2010, according to a report from AMP Capital.

AMP Capital Investors chief economist Shane Oliver said there were clear indications from the Reserve Bank of Australia that an interest rate rise was getting closer if not imminent.

Mr Oliver said the continuing run of better than expected economic data, including GDP growth of 0.6 per cent in the June quarter, means the chance of an interest rate hike by the end of the year is steadily rising.

“By end 2010 we expect that the cash rate will have increased to 5 per cent. It is worth bearing in mind though that this will just have taken interest rates back to normal levels and while the start of a tightening cycle may initially cause jitters in financial markets it won’t be until rates reach restrictive levels (judged to be 6 per cent or more) that monetary policy will start to become a real problem for the share market and the economy,” Mr Oliver said.

Interest Rates.

Feature Story: September Interest Rates The board of the Reserve Bank of Australia decided to leave the cash rate unchanged at 3.00 per cent at its monetary policy meeting today. The Australian economy has performed stronger than expected on the back of growth in China, which has had a significant impact in the region and on commodity markets. With financial markets beginning to stabilize, balance sheet weakness continues to be the main remaining risk to global recovery. With unemployment performing better than expected, the board expects underlying inflation to moderate in the near term. The board also notes that “it now appears that investment may not be as weak over the year ahead as earlier expected. Higher dwelling activity and public demand will also start to provide more support to spending soon and, hence, growth is likely to firm going into 2010.” “The Board’s judgment is that the present accommodative setting of monetary policy remains appropriate for the time being. The Board will continue to adjust monetary policy so as to foster sustainable growth in economic activity and inflation consistent with the target.”

Mortgage applications up by 28% end of June 09 financial year!

More Australians are taking out mortgages as low interest rates and government handouts make owning a home more feasible, a new consumer credit survey has found. According to Veda Advantage’s survey of consumer credit, there was a 28 per cent rise in applications for home loans in the year to 30 June. Veda Advantage’s general manager Russell Evans said Australians' appetite for mortgage finance is at an all time high. "Veda's measure of mortgage inquiry growth and volumes for the June quarter 2009 is higher than at any time in the past five years,” Mr Evans said. “ This continuing high level of demand is a response to high levels of housing affordability, low interest rates and the Federal Government's first home buyers' grant.” In the months from September 2008 to April 2009, the Reserve Bank of Australia (RBA) lowered the cash rate by 4.25 percentage points to a 49-year-low of three per cent. In mid-October, the federal government doubled the first home owners grant to $14,000 for existing dwellings and tripled it to $21,000 for newly built homes.

Interest rates on the move soon!

Rate hikes to hit before year end

The days of rock-bottom interest rates look numbered with the RBA now looking set to raise the cash rate before the year is out. NAB has warned that the Reserve Bank of Australia (RBA) will start its tightening cycle earlier than expected with the first of three 25 basis points rises to hit in a matter of months. The bank previously forecast two 25 basis point increases in February and March 2010, however, NAB predicts successive moves in November and December 2009 followed by a further 25 basis point increase in February 2010. The July NAB Business Survey showed a jump in business confidence and a stabilisation of conditions. This coupled with further signs that the pace of job shedding has slowed and construction spending is holding up provides evidence of the resilience of the Australian economy. “It now seems likely that the RBA will ratify the market’s expectations of rate hikes before Christmas,” NAB’s group chief economist Alan Oster said. “September and October still seem too early but by November we expect the time will be right for the first hike. We see the most likely path of policy being three consecutive 25 point increases in November/December/February, taking the policy rate to 3.75 per cent. “After this, the RBA board are likely to pause as they view the flow of economic data and gain confirmation that the recovery is unfolding as expected,” he said. “Two further 25 point moves in August and September 2010 are then likely, taking the rate to 4¼ per cent by year-end. Over 2011, we expect further policy tightening to 5½ per cent by the end of the year