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Commonwealth Bank raises interest rates 0.45%

The Commonwealth Bank of Australia has increased interest rates its range of home loan products by 0.45 percent, almost double the official interest rate rise from the Reserve Bank of Australia yesterday.

Commonwealth BankCommonwealth Bank increased its mortgage rate to 7.81 percent after the Reserve Bank increased the official cash rate to 4.75 percent after its monthly board meeting yesterday afternoon. The Commonwealth bank’s increase in interest rates will result in almost an additional $100 per month on a $300,000 home loan, slugging small business operators who are using their house to finance business operations with yet more costs.

After holding interest rates steady and at “about their historical average” since June, the Reserve Bank felt yesterday was the time to act, increasing the official cash rate by 0.25 percent to 4.75 percent. In a statement issued yesterday Reserve Bank Governor Glenn Stevens said the Reserve Bank Board was concerned about ‘expansionary shock’ due to overseas demand leading to the Australian economy being short on capacity, which in turn will lead to wage increases and inflationary pressure.

“While the labour market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies. After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.” Governor Stevens said.

“The economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today’s meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.”

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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