RBA hike risks christmas cheer

CHRISTMAS looks set to be a subdued affair with the Reserve Bank having its finger on the trigger for an interest rate rise today.

A new online survey, released yesterday by mortgage broker Loan Market Group, found a majority of respondents are planning to tighten their belts this Christmas due to rising interest rates.

Most market economists expect the Reserve Bank to raise the cash rate for an unprecedented third month in a row, lifting it by 25 basis points to 3.75 per cent.

This would add about a further $47 to monthly repayments on an average $300,000 mortgage.

“The low interest rate party is over,” Loan Market Group chief operating officer Dean Ruston said, releasing the survey results.

“This Christmas looks like being a fairly subdued one with rates on the way back up from record lows.”

Higher rates for many people would mean less money to spend this Christmas.

Of the 1250 respondents to the survey, 56 per cent said they would be scaling back their celebrations and present buying.

Nearly a third said they would be putting extra money into their mortgage and credit cards, while one-in-seven said they would be asking for money as a gift rather than a purchased item.

But rising interest rates is not doom and gloom for everybody, with 30pc saying they would spend more on Christmas presents this year because of the economy’s resilience.

Meanwhile, the TD Securities-Melbourne Institute monthly inflation gauge released yesterday showed prices rose 0.3pc in October, lifting the annual rate to 2.1pc.

The rate is just within the RBA’s 2 to 3pc inflation target band, after spending the previous six months well below it.

TD Securities senior strategist Annette Beacher said the board would be weighing up the risks of raising the cash rate by too much, too early compared with the risks associated with leaving the cash rate too low for too long.

“To us, a cash rate of 3.5pc is too accommodative for an economy clearly outperforming global peers, and prices appear to have stopped decelerating,” Ms Beacher said.

Contributing most to the increase in price rises were private motoring, fruit and vegetables, and household supplies.

These were partially offset by falls in prices for holiday travel and accommodation, and audio-visual and computing equipment.

Still, not all analysts believe another interest rate rise this week is inevitable.

Macquarie Bank interest rate strategist Rory Robertson, who has had a nose for picking interest rate decisions correctly against the flow of expectations in the past, believes the RBA will pause raising rates today, before resuming the rising trend next year.

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