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.”