Interest rates on hold - for now

THE RBA has left the official cash rate unchanged at 6.75 per cent, leaving it up to commercial banks and lenders to turn the screws on homeowners.

RBA logo /File

Interest rates on hold - for now

THE  Reserve Bank of Australia (RBA) has left the official cash rate unchanged at 6.75 per cent, leaving it up to commercial banks and lenders to turn the screws on homeowners.

While the central bank is sitting on its hands for now, retail banks have indicated they are willing to raise home loan interest rates regardless to cover rising wholesale borrowing costs, which are up due to the sub-prime mortgage crisis in the US.

 Adelaide Bank, is already moving. From today it will raise rates on select home loans by 25 basis points. The South Australian bank will add 25 basis points to the rate on some of the loans it supplies to mortgage brokers, who are expected to pass on the cost to borrowers.

"The move by Adelaide is an ominous sign that the four major banks are also poised to (independently) lift their sacrosanct variable mortgage rate in the not too distant future,'' RBC Capital Markets senior economist Su-Lin Ong told AAP yesterday.

"While buffered by their large deposit base, they too source some of their funding from offshore.''

The RBA last raised rates during the general election campaign in November. It was the 10th time the central bank had raised the official cash rate in the past five years.

That 25 basis point rise pushed variable home loan rates to an 11-year high of 8.57 per cent.

The central bank’s breather is expected to be a short one, with economists tipping another 25 basis point rise to be pushed through in February, with the possibility of a second rise by May. The RBA does not meet in January.

Economic data released since the last RBA meeting has been a bit of a mixed bag. Yesterday, weaker than expected monthly growth in retail spending and residential building indicated the economy may be slowing slightly.

But figures out earlier this week from TD Securities-Melbourne Institute showed that underlying annual inflation was up 3.6 per cent – well above the RBA’s target bank of 2 to 3 per cent growth.

The housing sector is already feeling the pinch, with new home sales rising only 0.8 per cent in October, according to a Housing Industry Association survey.