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RBA hikes home loan rates again

In another sign of the domestic economy’s growing strength, the Reserve Bank of Australia has raised the official cash rate 25 basis points to 4.25 per cent – the second rate hike for 2010.

The latest rate hike comes on the back of a 25 basis point increase last month.

While there has been growing concern that any further rate hikes could weaken consumer demand, house prices have surged dramatically in recent weeks, placing pressure on the Reserve Bank to lift rates.

RP Data’s national research director Tim Lawless told The Adviser that the Reserve Bank’s decision this month was always going to be difficult.

“On one hand they had to contend with housing values rising faster than they are comfortable with (capital city home values were up 3.2 percent over the last quarter). On the other hand, retail sales and building approvals were down suggesting a further rate rise will dampen consumer demand even further,” Mr Lawless said.

“The latest RP Data – Rismark Hedonic Home Value Index result was likely to have been one of the major inputs to the Reserve Bank’s decision to lift rates. Home values are up 12.7 per cent over the year and 3.2 per cent over the quarter; a rate of growth the RBA has already expressed some concern about.”

Speaking about the Reserve Bank’s decision to lift the official cash rate for the fifth time in six board meetings, governor Glenn Stevens said the risk of serious economic contraction in Australia had passed and global markets were beginning to function much better than one year ago.

“The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process,” Mr Stevens said.