Rates rise to 4 per cent but martket is still hot

Posted on Tuesday, March 02 2010 at 3:35 PM
http://wbx.me/l/?u=http%3A%2F%2Ffeedproxy.google.com%2F%7Er%2FAPI_Property_News%2F%7E3%2FpuKLUlpG8x4%2Frates-rise-to-4-per-centThe Reserve Bank has lifted official interest rates 0.25 of a per cent to four per cent and has hinted at further rises to come.

The latest rise comes three months after the previous rise in December, after the Reserve Bank (RBA) board didn't meet in January and then surprised economists by keeping rates on hold in February.

RBA Governor Glenn Stevens says the risk of serious economic contraction in Australia has passed, and the central bank is removing the monetary stimulus put in place when the outlook was much weaker.

"Interest rates to most borrowers nonetheless remain lower than average," Stevens says.

"The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today's decision is a further step in that process."

RP Data research analyst Cameron Kusher says the rates rise is in keeping with positive economic in recent weeks, though he adds that dwelling approvals and housing finance data have both still showed some softness.

"Despite the fact that the decision was made to increase rates today, we expect that the RBA will continue to keep a close eye on housing finance, dwelling approvals (and) commencement(s) and property value growth data," Kusher says.

"Higher interest rates are anticipated to result in a lower level of property value growth, however, it's a fine balance."

"The RBA have previously indicated that they would like to see the supply of dwellings nationally increase. Given this, they would like to see the number of dwelling approvals (and) commencement(s) increasing as well as the number of housing finance commitments for construction of new dwellings so that the supply of housing continue to increase at a rate commensurate with demand."

PRD nationwide managing director Jim Midgley says today's hike won't hit the property market too hard.

"There are enough signs in the current market that property is performing well. The intention of keeping inflation down is a good move," Midgley says.

"We're not going to see a great slowing. The dynamics of the property market still look very strong."