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First rate rise for 2010

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On March 2nd, the Reserve Bank lifted its key interest rate by 25 basis points to 4.00%, adding $50 to the average Australian monthly mortgage repayment. While this is the first rate rise for the year, it comes on top of three consecutive months of interest rate rises to close out 2009.

RBA Governor Glenn Stevens supported the widely expected rate rise by announcing that “the global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. In Asia, where financial sectors are not impaired, growth has continued to be quite strong. The authorities in some countries are now seeking to reduce the degree of stimulus to their economies.”

Signs of the recovery in the local economy include a falling jobless rate, rising home prices and strong retail sales data. Stevens adds that “in Australia, economic conditions in 2009 were stronger than expected, after a mild downturn a year ago. The rate of unemployment appears to have peaked at a much lower level than earlier expected. Labour market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months.”

With Australia rebounding strongly for the Global Financial Crisis, the latest rate rise is aimed at keeping the economy from growing too quickly and sparking higher inflation. As the situation in Australia continues to stabilise and improve many experts are tipping the official cash rate to reach 4.75% by the end of 2010. That’s an extra $150 on the average mortgage and could ask a few questions of the estimated 250,000 first-home owners who have entered the market over the past 18 months.