Interest rates go up, Reserve Bank of Australia rules From: AAP November 02, 2010 2:34PM
THE central bank raised interest rates to 4.75 per cent at its monthly board meeting today. Economists were earlier split as to whether it would sit tight on rates for another month, or lift the cash rate for the first time since May, while financial markets were pricing in only a small risk of a 25 basis point increase in the cash rate to 4.75 per cent.
These fears were cemented at 2.30pm (EDT) as homeowners prepared to watch today's Melbourne Cup.
It was the first rise in official interest rates in five months.
The Australian Chamber of Commerce and Industry earlier believed the Reserve Bank had the "breathing space and flexibility" to wait until early 2011 before considering another rate increase.
"One of the largest concerns of business is that a 25 basis point increase could actually convert into a 40 basis point increase or 50 basis point increase (in bank lending rates)," the chamber's director of economics and industry policy Greg Evans said in Canberra today.
"It certainly concerns Australian business, and particularly the impact that would have in shaking confidence."
The major banks have signalled their intention to lift their lending rates beyond any increase made by the Reserve Bank because of growing funding costs.
Such threats have sparked a major political row with Opposition Treasury spokesman Joe Hockey demanding reforms to the banking sector.
Mr Evans said the chamber for some time had been calling for a Productivity Commission examination of the levels of competition in the Australian banking system.
"What we have seen in the aftermath of the GFC (global financial crisis) is the exiting of many foreign banks and many non-bank lenders, and probably a poorer competitive position of all the banks in the economy," he said.
"We certainly are supportive of any measures by any politician that can put more focus on greater competition in the market."
