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Interest Rate Increases Could Threaten Economic Recovery
A string of consecutive rapid interest rate increases could jeopardize economic recovery in Australia and result in job losses Australian businesses have warned, after the Australian central bank announced an increase in official interest rates to 4 per cent on Tuesday.
On Tuesday, the Reserve Bank of Australia (RBA) lifted its benchmark lending rate by 25 basis points, and in doing so became the first G20 central bank to raise rates in 2010.
The move was widely expected by market participants, with financial markets pricing in a 30 per cent probability of another rate hike in April, and a 60 per cent probability that the RBA waits until May before initiating another rate increase.
Peter Anderson, chief executive of the Australian Chamber of Commerce signalled the displeasure felt by Australian business, saying that the rate hike was an “unwelcome headache” and could pose a risk to the still fragile economic recovery.
“The bank’s desire to head off inflation and avoid potentially steeper future interest rate rises will only be achieved without cost of jobs if governments and regulators take pressure off other business costs such as energy and labour.” Mr. Anderson said.
Australia’s largest mortgage lender Commonwealth Bank of Australia (CBA) was the first major bank to respond to the rise in official interest rates, and hiked its average standard variable rate by 25 basis points to 6.86 per cent.
ANZ and St. George also followed suit, passing on the full 25 basis point to their borrowers.
As of Tuesday night however, Westpac and NAB had yet to respond.
CBA and ANZ’s decision to increase their lending rates in synch with the central bank followed a stern warning issued by Federal Treasurer Wayne Swan.
“My message to the banks is that there’s absolutely no justification whatsoever for any increase over and above the official cash rate increase. If we look at the net interest margins for the major banks they have improved to pre-crisis levels, and there is no justification whatsoever for them to move over and above the cash rate.” Mr. Swan said.
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