No festive season gifts from the RBA as interest rates are boosted 25 basis points to 3.75 per cent.
Families that are feeling the pinch will need to tighten the purse strings even more, with the RBA topping up the rates before Christmas.
The Reserve Bank of Australia today raised the official interest rate by a quarter of a percentage point to take the cash rate to 3.75 per cent.
This is the first time that the central bank has increased rates for three consecutive months since rates were first announced by the RBA in 1990.
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Economists were divided as to whether the RBA would raise rates. ANZ chief economist Warren Hogan says economic conditions are favourable despite the recent debt problems in Dubai.
“Despite the volatility in financial markets in the past week or so, the domestic economy is doing exceptionally well,” Mr Hogan said.
“All the economic data we’ve seen in the past month has not only reinforced that but probably been stronger than most were expecting.”
Mr Hogan says the troubles in Dubai which sparked losses on global sharemarkets are nothing to be too concerned about as the exposure to domestic markets appears minimal.
“It really is a short-term news-type event,” he said.
“The magnitude of the problems there, while significant, it’s really is nothing compared to what we went through a year ago.”
Has the RBA acted too quickly?
However, other economists have warned that the RBA’s rush to increase rates may be heavy-handed given the uncertainty surrounding the global economic recovery.
“This is a particularly fragile phase of the recovery where the Government and the Reserve Bank risk getting it wrong if the balance and timing of fiscal and monetary stimulus is not calibrated appropriately”, said Rod North, MD of Bourse Communications.
“Following the recent increases in the cash rate in October and November by 25 basis points and another increase today of a further 25 basis points, it is still too early in the cycle to begin an aggressive rate hike. More time is needed for recovery as part of the economic healing process”, he said.
