Interest Rates
The Reserve Bank of Australia has become the first major central bank in the world to raise interest rates since the onset of the financial crisis, signalling a strong recovery in the economy.
The RBA set rates at 3.25 percent recently, up 25 basis points from 3 percent, fuelling a further rally in the dollar as confidence in the Australian economy soared.
Interest rates had remained unchanged at a 49-year low for five consecutive months until today, with the RBA raising rates for the first time since March last year.
The Brass Razoo: where next for rates? The only way is up
The move brings to an end the period of relief for cash-strapped homeowners, pushing mortgage repayments up.
The 25 basis point rise will boost monthly repayments by $41 a month for those with a $300,000 mortgage, while those shouldering a $400,000 home loan will see repayments rise by $61.
Repayments on a mortgage of $600,000 will rise by $82 a month, and by $116 per month on a loan of $850,000.
RBA governor Glenn Stevens said the basis for such a low interest rate setting has now passed.
"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," he said.
"This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."
However, in the run up to today's decision from the RBA, some economists warned that a rate rise this soon could risk a "double dip recession".
Australia is now the first of the G20 nations to raise rates since the global financial crisis forced central banks across the globe to begin slashing interest rates. Interest rates in the US, UK and Japan remain set at around zero percent.
In an open letter to the RBA board, Stephen Koukoulas, chief global strategist at TD Securities, said: "An interest rate hike now would really run the risk of whether you call it a double-dip recession or a W shaped growth performance, there's a real risk that the Australian economy could buckle under a premature tightening in policy."
Earlier today, the Australian Chamber of Commerce and Industry (ACCI) warned that an early rate rise could hit business confidence.
Greg Evans, director of economic and industry policy at ACCI, said there was no need to move rates at this stage.
"We don't want to see an early increase that potentially chokes off the increasing levels of confidence among business," he said.
Despite the recent glut of upbeat economic news, including the second monthly rise in job advertisements, business confidence remains fragile.
Figures due for release later this week are expected to show that the unemployment rate climbed to 6 percent during August, up from 5.8 percent, as employers shed 10,000 jobs.
Meanwhile, the government continues to stand by its forecast of 8.5 percent unemployment by 2010.
"We are still concerned about some potential fundamental weakness in the economy, and overall demand and conditions," Mr Evans added.
