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Australia has recorded better than expected unemployment figures and the economy is now moving in the right direction
The Reserve Bank of Australia (RBA) has officially declared Australia to be in recovery mode after lifting the official cash rate by 25 basis points earlier this month.
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Having kept rates at their emergency low of 3 per cent for the past six months, the RBA is now pushing to get rates back to more normal levels.
Analysts are now predicting the RBA will raise rates by 0.25 percentage points with reasonable frequency until the official cash rate is back to at least 4 per cent.
NAB’s chief economist Alan Oster predicts the RBA will raise rates by 25 basis points at its next two meetings, taking the cash rate to 3.75 by year end.
“The bottom line is that the emergency lows in rates are no longer needed,” says Mr Oster.
RBA governor Glenn Stevens says the “serious economic contraction” which justified the board’s decision to slash rates by four percentage points in the months following the collapse of Lehman Brothers last year has passed.
“The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” says Mr Stevens.
Mr Stevens says Australia’s better than expected unemployment figures were another reason behind the rate rise, with the unemployment rate currently sitting at 5.7 per cent.
In September, the number of Australians in full-time employment rose by 35,400 to 7,589,800, with part-time employment figures also rising slightly by 5,200 to 3,215,800.
While the 25 basis point move would push standard variable mortgages back above 6 per cent, costing borrowers approximately $46 more a month on an average $300,000 home loan, mortgage holders would still be $708 a month better off than they were in August last year.
