Latest NewsNo End in Sight to Rate RisesSunday, 01 January 2017

Dramatically higher resource prices have emboldened the Reserve Bank to lift interest rates for the fifth time in seven months, making it clear there is no end in sight.

The bank's decision to lift its cash rate from 4 to 4.25 per cent pushes most bank standard variable mortgage rates well above 7 per cent, adding a further $48 to the monthly cost of repaying a $300,000 mortgage and
$64 to the cost of repaying a $400,000 mortgage. This brings the total extra costs since October to $187 and $250 a month.

Acknowledging that the process would continue, Treasurer Wayne Swan said the economy was strengthening and the Reserve Bank would ''continue to take its decisions as it assesses economic conditions month by month''.

''I know that's cold comfort for a lot of families and a lot of people in business,'' Mr Swan said. ''But it is a painful and uncomfortable fact that with a strengthening economy, unfortunately we see rates returning to more normal levels.''

The Reserve Bank was heavily influenced by two massive resource deals - BHP's 55 per cent increase in the price of coking coal sold to Japan and the Brazilian producer Vale's 90 per cent increase in the price of iron ore sold to China.

It believes that if these price-rises hold or are extended, the economy will be exceptionally strong in the two years ahead and will not need support from below-average interest rates.

''There is barely a word of weakness in the bank's statement,'' said IPAC Securities economist Adam Carr. ''It thinks the housing market is still buoyant and that's the only sign of weakness in an otherwise bullet-proof economy.

''If the bank isn't going to pause now, then logically there is little to prevent a May, and even a June, hike. Clearly the risk to this view is more rather than less. The one thing I think we can rule out is sustained pause from here.''

Westpac economist Bill Evans agreed. ''They haven't finished raising rates. The statement points to concerns with the stimulatory impact of the rising terms of trade overriding any doubts about the housing and consumer sectors.''

Each of the big four banks will lift its mortgage rates by 0.25 points, with most lifting their credit card, business rates and deposit rates as well.

An earlier outsized move by Westpac leaves its standard variable mortgage rate the most expensive at 7.26 per cent and National Australia Bank the only bank below 7 per cent with a rate of 6.99 per cent.

Credit Union Australia remains far cheaper than any of the majors after cutting its rate by 0.25 points late last month. Late yesterday it was considering how to respond to the Reserve Bank's move, but should it merely pass on the 0.25 point increase as the banks have done, its standard variable mortgage rate will be 6.62 per cent.

Ahead of the banks' moves Mr Swan warned that any bank that did more than pass on the Reserve Bank increase would be ''arrogant in the extreme'' and suffer retribution from customers.

He said that while someone with a $300,000 mortgage would be paying more, they would still be paying $500 less a month than before the Reserve Bank began cutting rates in response to the global financial crisis in late 2008.

Mortgage rates peaked at an average of 9.36 per cent in September 2008 and had reached 8.57 per cent when the Coalition left office in late 2007.

Job advertisement figures released as the Reserve Bank board met showed reliance rising a further 2 per cent in March, with newspaper ads slipping just 1 per cent after climbing a record 13 per cent in February.

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