Interest Rates just went up a quarter of a percent.

[Smoke Pursuit]

THE cost of mortgages is about to rise after the Reserve Bank decided to lift interest rates by a quarter of a percentage point today.

The increase - the first since March last year - means those with mortgages will need to find, on average, a further $42 a month to cope.
The official cash rate now stands at 5.75 per cent - the highest level since February 2001.

The RBA sets interest rates to keep inflation below 3 per cent.

Inflation stood at 3 per cent over the year to March 2006, rising gradually with higher fuel prices and other goods and services.

But modelling by the National Bank of Australia showed that, excluding the influence of oil, inflation would rise to 3.2 per cent by late this year and remain there throughout 2007.


Advertisement:
The NAB business survey released yesterday suggested the unemployment rate could drop to 4.75 per cent later this year, which would put further pressure on wages costs and inflation.
However, economists had been split on the need for an increase right up until today's announcement.

Macquarie Bank senior economist Brian Redican had argued against the move, saying high petrol prices were creating uncertainty about the strength of the economy, price inflation and consumer spending.

"We simply think there's a case for letting the dust settle," Mr Redican said. "If you do raise rates while petrol prices are rising, you could have a surprisingly large impact on consumer spending that you really don't want to produce."

Families have already been hit by the equivalent of two interest rate rises – or $80 a month – due to petrol price increases, meaning petrol is doing the work of an interest rate rise by curtailing spending.

Fuel has soared from just over $1 a litre in the early months of last year to about $1.40 today, putting strain on budgets and forcing people to rein in their expenditure.

Petrol price rises in recent months have added $40 a month to the cost of filling up a car – or $80 for a typical household of two vehicles – compared with the same time in 2005.

CommSec economist Craig James said: "If the Reserve Bank was concerned spending was picking up and impacting on inflation, then higher petrol prices are doing their job for them by keeping spending under control so that consumers do not over commit themselves."

The Reserve Bank board met yesterday to make its decision on whether to raise rates.

As the board debated the cases for and against intervention, the influential International Monetary Fund indicated its views.

It argued that there appeared to be no real threat to the economy from higher prices.

"Inflation has been contained," it said yesterday.

[4.9 EF Futura]

Let's hope that this is all that is needed to keep a lid on inflation. Consdidering the inflationary pressure on fuel prices and the flow on effect to other products - it may stop inflation spreading to other goods and services in the long term.

I think they've done the right thing.

[TheSneakiness]

I knew this was gonna happen.

Yet our wages stay the same week in, week out.

[4.9 EF Futura]

Originally Posted by AUII_SE_Ute

Yet our wages stay the same week in, week out.

What's that got to do with anything?

[parawolf]

Originally Posted by AUII_SE_Ute

I knew this was gonna happen.

Yet our wages stay the same week in, week out.

Yours might...

[max]

Makes a real lot of sense don't it??? Average wage earners already grappling with exorbitant fuel costs, having to borrow quarter of a mill to put a roof over their heads. Whack 'em over the head with an additional $50 odd a month to find now, so they will be forced to spend way less, or turn to the cheap imports. Businesses/local manufacturers/retail will feel the pinch. Does this = a good economic base?????

[Mark351]

The next budgeted tax cut (from lasy year's budget) comes in from July 1. We might see further cuts in next weeks budget. That'll help a bit.

[gtfpv]

most superannuation funds had record growth in the last 12 months though mine went up 24% so dont forget even though you cant access thois you still done ok.
i wonder what the infl;ation prediction would be if they had of included oil rises.????
regarding wages . now that is an interesting one . people battling to remain with the same income . so in somecases wages going down and costs rising dramatically.
on the news today a small report on generation x's not buying 1st homes and choosing to enjoy other things like cars and holidays, no surprise , this is people in thier 30's and 40's. staying home with parents. the reason they say is " HOUSING COSTS WAY TOO HIGH FOR EARNINGS TO PAY FOR THEM , FURTHER intensified by no JOB SECURITY.
this is often brought up and is so true . what is never bought up though is the fact that these people although dependent upon thier parents will inherent thier parents wealth . combined with superannuation. so it is a case of the government and the economy is SPENDING THE KIDS INHERITENCE at the cost of delayed wealth , in other words people will be ok from 50 onwards instead of 25 onwards as thier parents were. that is my theory anyway . i wish i knew the outcome of all this. but i will take aguess.
i say reduced birthrates , ( dramatically) and a cultural change due to imigrants used to a much lower living standard coming here and working and managing to have medium sise families ie : instead of 12 kids 4 or 5 or 2. and a small percentage of already wealthy australians ( the farque you jack i'm ok 10% minority ) enjoying all the wealth in thew long term it is the death of the western way of life.

[Outbackjack]

Originally Posted by gtfpv

most superannuation funds had record growth in the last 12 months though mine went up 24% so dont forget even though you cant access thois you still done ok.
i wonder what the infl;ation prediction would be if they had of included oil rises.????
regarding wages . now that is an interesting one . people battling to remain with the same income . so in somecases wages going down and costs rising dramatically.
on the news today a small report on generation x's not buying 1st homes and choosing to enjoy other things like cars and holidays, no surprise , this is people in thier 30's and 40's. staying home with parents. the reason they say is " HOUSING COSTS WAY TOO HIGH FOR EARNINGS TO PAY FOR THEM , FURTHER intensified by no JOB SECURITY.
this is often brought up and is so true . what is never bought up though is the fact that these people although dependent upon thier parents will inherent thier parents wealth . combined with superannuation. so it is a case of the government and the economy is SPENDING THE KIDS INHERITENCE at the cost of delayed wealth , in other words people will be ok from 50 onwards instead of 25 onwards as thier parents were. that is my theory anyway . i wish i knew the outcome of all this. but i will take aguess.
i say reduced birthrates , ( dramatically) and a cultural change due to imigrants used to a much lower living standard coming here and working and managing to have medium sise families ie : instead of 12 kids 4 or 5 or 2. and a small percentage of already wealthy australians ( the farque you jack i'm ok 10% minority ) enjoying all the wealth in thew long term it is the death of the western way of life.

Very interesting theories there, god I hope you are wrong, but I fear you are more correct than incorrect. And then lets not forget that primary products, the ones that are financing the economy at the moment, will not be at apremium price for much longer.

[Black XR6]

Originally Posted by gtfpv

most superannuation funds had record growth in the last 12 months though mine went up 24% so dont forget even though you cant access thois you still done ok.
i wonder what the infl;ation prediction would be if they had of included oil rises.????
regarding wages . now that is an interesting one . people battling to remain with the same income . so in somecases wages going down and costs rising dramatically.
on the news today a small report on generation x's not buying 1st homes and choosing to enjoy other things like cars and holidays, no surprise , this is people in thier 30's and 40's. staying home with parents. the reason they say is " HOUSING COSTS WAY TOO HIGH FOR EARNINGS TO PAY FOR THEM , FURTHER intensified by no JOB SECURITY.
this is often brought up and is so true . what is never bought up though is the fact that these people although dependent upon thier parents will inherent thier parents wealth . combined with superannuation. so it is a case of the government and the economy is SPENDING THE KIDS INHERITENCE at the cost of delayed wealth , in other words people will be ok from 50 onwards instead of 25 onwards as thier parents were. that is my theory anyway . i wish i knew the outcome of all this. but i will take aguess.
i say reduced birthrates , ( dramatically) and a cultural change due to imigrants used to a much lower living standard coming here and working and managing to have medium sise families ie : instead of 12 kids 4 or 5 or 2. and a small percentage of already wealthy australians ( the farque you jack i'm ok 10% minority ) enjoying all the wealth in thew long term it is the death of the western way of life.

Geez all that from a 1/4 percent rate rise.

Remember people, interest rates are still historically low at the moment. If interest rates were %2 you would see people complaining about any rate increase because people generally borrow upto their limit leaving little room for rate rises.

That was one of my gripes with the first home buyers grant that made it possible to buy a home with no deposit at all using the grant. These families and lower income earners swapped renting for a higher mortgage, but that meant borrowing to their max. When interest rates rise it is going to cause alot of houses to be put on the market.

[gtfpv]

Originally Posted by Black XR6

Geez all that from a 1/4 percent rate rise.

Remember people, interest rates are still historically low at the moment. If interest rates were %2 you would see people complaining about any rate increase because people generally borrow upto their limit leaving little room for rate rises.

That was one of my gripes with the first home buyers grant that made it possible to buy a home with no deposit at all using the grant. These families and lower income earners swapped renting for a higher mortgage, but that meant borrowing to their max. When interest rates rise it is going to cause alot of houses to be put on the market.

agree , my piont has nothing to do with a 1/4 % rate hike . i think people could absorb 2% more but the way the situation is already the economy or plan is set in concrete. the only uncertanties are unpredictables like war and natural disaster. evn if interest rates came down to 3% wages still struggle to meat costs of 3- $400,000 mortgages . to put it into perspective . i'm 37 when i was 24 i purchased my 1st home for $167,000 i had $50,000 savings already my income was $50000 inc ot. + wifes inc $25000. int rate was 8%
today that same house is worth over $400,000 . so a 24 year old in the same situation would have to have about $125 000 already saved be married or have a partner with a combined income of around $200 000 (to compensate for the higher tax bracket because of bracket creep.) borrow $300,000 because of higher exit and stamp duty fees. and then over the next 5 years increase there earnigs by at least 50 % as i did and pay house off by 31 . the house would be worth $600,000 by now . can you see this happening??? this is what happened in my case . as the earnings to debt were easy . it is not possible for this to happen with the currant situation to the average joe blow. many people my age exactly the same situation . some far better as they borrowed more than me and bought extra properties .
if i was 24 today and didnt have the abovementioned figures then to get where i am today at 37 would take a complete differant statagy. many people would simply say including me . farque it that new typhoon and a holiday in europe looks pretty good. i wonwder if mum will let me build a granny flat out the back or extend the house.
or even better start buying takeaway like KFC for you parents on a regular basis and putting off marriage and kids till mid 40's and live itat home with the parents . BUT WAIT A MINUTE ISN'T THIS HAPPENNING .ALREADY????

[max]

My thoughts go out to the newbies in the 'settling down market' as gtfpv suggests. I set up some investment portfolios when interest rates were about 9.5%. In addition the property investments I made were the kind which will appeal to higher income/people heading into retirement, i.e, seaside townhouse and courtyard home in desirable location. Theoretically when I come to sell the buyers will be cash buyers and interest rates will be immaterial to them. To me personally interest rates are still refreshingly low, and anyway I can offset by negative gearing benefits. On the otherhand, I see my married daughters flinch at today's interest rates news. They are sporting $300K+ mortgages on their primary residence. Add to that a couple of kids costing a small fortune and bingo! What they say is more entertaining at home and less going out, tighter reign on shopping, judicious choices in purchasing (yep, more imports) generally reducing spending support to local business. Beneficiaries will continue to be Fed, state & local govts, Utilities and essential services. Where is the longer term improvement for the country's economy?

[4.9 EF Futura]

Originally Posted by max

Where is the longer term improvement for the country's economy?

The benefit will be in the absence of high inflation. We're entering the tough part of the economic cycle... the good times will be back... by keeping a tight reign on the heat of the economy, we can hopefully make sure the bad times arent as bad as they could be - and hopefully the good times will come around a lot sooner.

Cold comfort i suppose... but life's a bi*ch

[Black XR6]

Originally Posted by gtfpv

agree , my piont has nothing to do with a 1/4 % rate hike . i think people could absorb 2% more but the way the situation is already the economy or plan is set in concrete. the only uncertanties are unpredictables like war and natural disaster. evn if interest rates came down to 3% wages still struggle to meat costs of 3- $400,000 mortgages . to put it into perspective . i'm 37 when i was 24 i purchased my 1st home for $167,000 i had $50,000 savings already my income was $50000 inc ot. + wifes inc $25000. int rate was 8%
today that same house is worth over $400,000 . so a 24 year old in the same situation would have to have about $125 000 already saved be married or have a partner with a combined income of around $200 000 (to compensate for the higher tax bracket because of bracket creep.) borrow $300,000 because of higher exit and stamp duty fees. and then over the next 5 years increase there earnigs by at least 50 % as i did and pay house off by 31 . the house would be worth $600,000 by now . can you see this happening??? this is what happened in my case . as the earnings to debt were easy . it is not possible for this to happen with the currant situation to the average joe blow. many people my age exactly the same situation . some far better as they borrowed more than me and bought extra properties .
if i was 24 today and didnt have the abovementioned figures then to get where i am today at 37 would take a complete differant statagy. many people would simply say including me . farque it that new typhoon and a holiday in europe looks pretty good. i wonwder if mum will let me build a granny flat out the back or extend the house.
or even better start buying takeaway like KFC for you parents on a regular basis and putting off marriage and kids till mid 40's and live itat home with the parents . BUT WAIT A MINUTE ISN'T THIS HAPPENNING .ALREADY????

Fully agree with that. For a lot of people these days, their only hope of owning a home is from their super annuation payout and by the time they get it even that wont be enough.

[4.9 EF Futura]

I think perhaps there may be a lack of understanding regarding monetary policy and way which inflation works?

If you increase interest rates by 0.25% - then turn around and say "right - o, we'll up wages by 0.25% to equal this" - do you not see what this does???

Not only does it defeat the purpose of raising the target rate in the first place (i.e. reduce disposable income, calm the economy down, reduce inflationary pressures) but it would actually promote a steeper rate of inflation.

Why?

You just increased the price of servicing debt. Then increased wages to combat this. Same net result as before (mortgage payments have gone up but so have wages) - but a whole lot more money in the aggregrate to achieve this same result.

This is the definition of inflation. You are effectively "printing money". This does not make for good monetary policy and any government who suggested such an approach whould be taken out and shot.

Whack 'em over the head with an additional $50 odd a month to find now, so they will be forced to spend way less

That's the idea man. Reduce disposable income, calm the economy. Its sound economic management.

And then lets not forget that primary products, the ones that are financing the economy at the moment, will not be at apremium price for much longer.

Excellent point. This is a huge concern and further promotes the need to calm our economy down (reduce demand for imported goods for christ's sake!!!!) - a result which is proven from increased interest rates. Despite VERY favourable commodity prices - our current account deficit still stinks like rotten eggs. Going to be real nasty when those prices start to come down - unless we can reduce the amount of importing!!!

Interest rate rise will be benefical to the foreign exhange rate as well as reducing the level of demand for important goods. Twofold improvement for the current account.

Thank god the government has eliminated the public foreign debt of previous governments. Now we need the private sector to do their part.

[max]

Originally Posted by 4.9 EF Futura

I think perhaps there may be a lack of understanding regarding monetary policy and way which inflation works?

If you increase interest rates by 0.25% - then turn around and say "right - o, we'll up wages by 0.25% to equal this" - do you not see what this does???

Not only does it defeat the purpose of raising the target rate in the first place (i.e. reduce disposable income, calm the economy down, reduce inflationary pressures) but it would actually promote a steeper rate of inflation.

Why?

You just increased the price of servicing debt. Then increased wages to combat this. Same net result as before (mortgage payments have gone up but so have wages) - but a whole lot more money in the aggregrate to achieve this same result.

This is the definition of inflation. You are effectively "printing money". This does not make for good monetary policy and any government who suggested such an approach whould be taken out and shot.



That's the idea man. Reduce disposable income, calm the economy. Its sound economic management.



Excellent point. This is a huge concern and further promotes the need to calm our economy down (reduce demand for imported goods for christ's sake!!!!) - a result which is proven from increased interest rates. Despite VERY favourable commodity prices - our current account deficit still stinks like rotten eggs. Going to be real nasty when those prices start to come down - unless we can reduce the amount of importing!!!

Interest rate rise will be benefical to the foreign exhange rate as well as reducing the level of demand for important goods. Twofold improvement for the current account.

Thank god the government has eliminated the public foreign debt of previous governments. Now we need the private sector to do their part.

I would hazard to say a lot of people have NO DISPOSABLE INCOME. They live on credit or chew up their home equity by way of equity loans.
Imports demand rise because people want el-cheapo instead of local made product. Thus we import more. Its a vicious cycle. We want $10 shirts made in China, not a local one for $45. The shipping channels into our main ports are choked with container ships inbound with goods from China/India
which is what we now demand because its what we can afford.

[4.9 EF Futura]

Originally Posted by max

I would hazard to say a lot of people have NO DISPOSABLE INCOME. They live on credit or chew up their home equity by way of equity loans.

Yes - far too many people are geared up to the hilt. No one put a gun to their head tho and you cant legislate against people over gearing. We have made these beds and now we must sleep in them.

Point noted on cheap imports - but again, you cant legislate against people wanting lower priced prodcuts. However putting a sting in the amount of money people have to spend will reduce demand across the board - domestic and imported, ceterus paribus.

[DivHunter]

Originally Posted by 4.9 EF Futura

I think perhaps there may be a lack of understanding regarding monetary policy and way which inflation works?

If you increase interest rates by 0.25% - then turn around and say "right - o, we'll up wages by 0.25% to equal this" - do you not see what this does???

Not only does it defeat the purpose of raising the target rate in the first place (i.e. reduce disposable income, calm the economy down, reduce inflationary pressures) but it would actually promote a steeper rate of inflation.

Why?

You just increased the price of servicing debt. Then increased wages to combat this. Same net result as before (mortgage payments have gone up but so have wages) - but a whole lot more money in the aggregrate to achieve this same result.

This is the definition of inflation. You are effectively "printing money". This does not make for good monetary policy and any government who suggested such an approach whould be taken out and shot.



That's the idea man. Reduce disposable income, calm the economy. Its sound economic management.



Excellent point. This is a huge concern and further promotes the need to calm our economy down (reduce demand for imported goods for christ's sake!!!!) - a result which is proven from increased interest rates. Despite VERY favourable commodity prices - our current account deficit still stinks like rotten eggs. Going to be real nasty when those prices start to come down - unless we can reduce the amount of importing!!!

Interest rate rise will be benefical to the foreign exhange rate as well as reducing the level of demand for important goods. Twofold improvement for the current account.

Thank god the government has eliminated the public foreign debt of previous governments. Now we need the private sector to do their part.

It's the elimination of foreign debt that will see the current govt. out and the big spenders back in : Hopefully not but it seems to be the way it has worked before. At least Beazley has made a fool of himself yet again :

[4Vman]

Originally Posted by Fairmont99

It's the elimination of foreign debt that will see the current govt. out and the big spenders back in : Hopefully not but it seems to be the way it has worked before. At least Beazley has made a fool of himself yet again :

This is the single biggest threat this country faces, the current govt has been fruggle and careful with spending and focused on paying off inherrited debt, in return some sections of the community have complained that they have had their "handouts" or benefits reduced.
Traditionally the current opposition has "bought" votes with exobidant spending and increased wellfare, support and services to low income earners, this has caused debt that ultimately everyone has to pay off sooner or later.

The Australian dollar is far too high for our own good, it needs to drop back to 58-65c to kickstart local industry again, the new IR laws are an attemt to create a more competitive local industry that can cope with the high aussie dollar, and ultimately be competitive on a global scale.

[Hardtopxb]

What most people see here.OOOH. OOOH Look people have a bit of money.OOOH,OOOH Look they are spending it,,,OH no people are going into debt to buy a house. Lets put the interest rates up so they can struggle a bit to pay their monthly repayments.Now that should fix everything up..(yes its sarcasm).

[TheSneakiness]

My bad all.

What's wrong with ecomonic growth? Where I work, when interest rates go up, our work goes down, because people cannot afford to buy our product. When work goes down, people get laid off.

That's why I don't like hearing about interest rate rises...

[4.9 EF Futura]

Originally Posted by AUII_SE_Ute

What's wrong with ecomonic growth? Where I work, when interest rates go up, our work goes down, because people cannot afford to buy our product. When work goes down, people get laid off.

If rates dont go up in the face of economic inidicators showing inflationary pressure, the economy cooks (approaches full employment of resources), prices rise, inflation increases and wages are eroded. People stop spending money, putting people out of work.

Economy then starts to cool off too quickly and goes into recession. More people lose jobs, cant afford to buy products, meaning more people lose jobs, who then cant afford to buy products, meaning more people lose jobs, who then cant afford to buy products, meaning more people lose jobs

No offense - but you need to look beyond the doors of your own workplace.

Riddle me this.

Better to see a $40 increase to a mortgage repayment...

Or

See the price of goods and services (i.e. inflation) increase by 8 or 9 percent (effectively a 9% paycut)

???

And yes - you have to pick one, they are mutually exclusive.

[TheSneakiness]

Originally Posted by 4.9 EF Futura

If rates dont go up in the face of economic inidicators showing inflationary pressure, the economy cooks (approaches full employment of resources), prices rise, inflation increases and wages are eroded. People stop spending money, putting people out of work.

Economy then starts to cool off too quickly and goes into recession. More people lose jobs, cant afford to buy products, meaning more people lose jobs, who then cant afford to buy products, meaning more people lose jobs, who then cant afford to buy products, meaning more people lose jobs

No offense - but you need to look beyond the doors of your own workplace.

Riddle me this.

Better to see a $40 increase to a mortgage repayment...

Or

See the price of goods and services (i.e. inflation) increase by 8 or 9 percent (effectively a 9% paycut)

???

And yes - you have to pick one, they are mutually exclusive.

Well, I've never really had it put to me this way before.

You're right.

[HLC]

this is all too hard to understand :|

[SIKXR8220]

I am 23 and bought my first house last year borrowed way under what the bank said we could borrow and still got a beautiful house that after a year we have $30,000 equity in. My mortgage payments will stay the same because for a measly $250 i locked a rate of 5.68 in for 5 years. I did this because you could see that interest rates were only going to go up not down. I'm suprised more people havent done this.

As for people borrowing up to their maximum thats their own fault, no-one forced them to live in the high priced suburbs or buy the biggest house they could.If i was them i would be worried if house values start going down which they eventually will and they have a $300,000 loan on a $250,000 house.

[Polyal]

Well it had to be done like others have said.

Plus the new budget is out next week I think, and Id be very suprised if some sort of tax cutting somewhere isn't done.

[max]

Originally Posted by Polyal

Well it had to be done like others have said.

Plus the new budget is out next week I think, and Id be very suprised if some sort of tax cutting somewhere isn't done.

Is that a fact? Well ile beef hucked!!! That anticipated tax cut will enable the purchase of a pie without sauce and a 200ml carton of no-name brand iced-coffee to consume while we wait in the cold outside the bosses office to sign an AWA which will incorporate Dickensian working conditions.

[Fairlane]

Come on there's a bit of misinformation here. The reseve bank, sets the interest rates for the best interests of the nation. Shock Horror

The rates have to go up in order to encourage investment and reduce inflation. High Inflation is worse than high interest rates, all people suffer under inflation and so does economic growth and unemployment (think 1970s).

So before everyone roasts the reserve bank, understand there just doing there job and if they didnt take the tough decisions it will be a lot tougher in the future for everyone and yes interest rates dont stay at 30year lows forever.

Comiserations with the people in debt but theres not much you can do, except pressure your government for tax cuts and welfare increases.

[4Vman]

Originally Posted by Fairlane

Comiserations with the people in debt but theres not much you can do, except pressure your government for tax cuts and welfare increases.

You cant ask for more if you pay less! this is a problem with society, tax cuts mean Govt spending cuts!!!
The current opposition has traditionally lobbied the electorate very successfully on this missconception: "we'll cut tax's and give you better bla bla bla etc.." They end up borrowing money to keep election promises and plunge the country into debt, then they eventually get voted out and the elected party spends the next 10 years paying off the inherrited debt instead of having more to spend on national services and improvements.
Ask for tax cuts, no problems, but you have to accept that there will be less to "go round" as a result.

[SIKXR8220]

Originally Posted by 4Vman

You cant ask for more if you pay less! this is a problem with society, tax cuts mean Govt spending cuts!!!
The current opposition has traditionally lobbied the electorate very successfully on this missconception: "we'll cut tax's and give you better bla bla bla etc.." They end up borrowing money to keep election promises and plunge the country into debt, then they eventually get voted out and the elected party spends the next 10 years paying off the inherrited debt instead of having more to spend on national services and improvements.
Ask for tax cuts, no problems, but you have to accept that there will be less to "go round" as a result.

I agree that tax cuts mean less government spending but they dont seem to be improving much with the billion dollar surplus they seem to get every year now. If they started doing more with public services ie more police, better hospitals, better rural support etc then Mr Costello can keep my $10 a week.