Reserve Bank increases its official cash rate to 4.75pc By staff writers From: news.com.au November 02, 2010 3:17PM
Reserve Bank hikes rate to 4.75pc Read: Reserve Bank rates statement
HOMEOWNERS with an average-sized mortgage should expect to pay at least $50 a month extra on their loan repayments after the Reserve Bank raised the cash rate for the first time since May. The decision to lift the rate to 4.75 per cent from 4.5 per cent following today's central bank monthly board meeting will surprise many economists after last week's benign inflation readings.
The dollar rose almost one US cent after RBA hiked its cash rate for the first time in six months today.
The local unit was trading at 99.67 in the minutes after the RBA took the cash rate to 4.75 per cent from 4.5 per cent, where it has been since May.
In the minutes leading up to the RBA's decision at 2.30pm (AEDT) the dollar was trading at 98.87 US cents.
Still, Reserve Bank governor Glenn Stevens repeatedly has argued in recent months that rates would need to be raised at some point in a pre-emptive strike against a potential inflation breakout caused by the second phase of the mining boom.
In a statement following the meeting, Mr Stevens said the economy was now set for a "large expansionary shock" from the high terms of trade at a time of relatively modest amounts of spare capacity.
"Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains," Mr Stevens said.
"At today's meeting, the board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."
The increase in the cash rate would add just over $48 a month to repayments on an average $300,000 mortgage, but the major banks have warned of larger rate increases than official moves because of their more expensive funding costs.
Such a threat has sparked a major political row with opposition treasury spokesman Joe Hockey demanding reforms to the banking system, a call that has gained support from the public.
A Senate inquiry will be held into the banking sector that will report back to parliament by March 2011.
The central bank will flesh out today's rate decision when it releases its quarterly monetary policy statement on Friday.
Mr Stevens and his economics team will also face their twice-yearly grilling in front of a parliamentary committee on November 26. .
