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.

PETER MARTIN

WESTPAC has been hit by further resignations from its Community Consultative Council after it raised its mortgage rate by almost double the Reserve Bank’s recent rate rise – just one day after a round-table discussion about financial hardship.

Meanwhile, the head of the Australian Competition and Consumer Commission, Graeme Samuel, told the ABC he was not sure he would allow Westpac to take over St George if the application came before him again.

Rod Masson, the acting national secretary of the Finance Sector Union, and the president of the ACTU, Sharan Burrow, wrote to Westpac on Friday citing ”insincerity” and saying it was ”galling” that the bank’s retail chief had consulted the council about financial hardship less than a day before announcing a near-doubling of the Reserve Bank’s rate rise.

”The meeting was chaired by Peter Hanlon, the executive who less than 24 hours later announced the double hike,” Mr Masson said. ”We discussed the impact the Reserve Bank hikes would have on people who had lost their jobs and suffered reduced hours.

”We will stay in the ANZ and the National Australia Bank’s stakeholder forums, but not Westpac’s – not after this.”

The Finance Sector Union and the ACTU are the second and third groups to have withdrawn from the Westpac Community Consultative Council after the consumer group Choice, which left about two years ago. Continuing council members include the Smith Family, Mission Australia and the St James Ethics Centre.

”Westpac is disappointed,” said a spokesman, David Lording. ”But we respect that sometimes opinions diverge.”

Mr Samuel told the ABC’s Inside Business that banks such as Westpac faced less competition and found it easier to push up rates. While his decision to allow Westpac to acquire St George last year was the right at the time, he was not sure it would be right today.

John Rolfe, Consumer Affairs Reporter – Daily Telegraph

NATIONAL Australia Bank has attacked its rival Westpac in announcing it will increase its home loan rates by the same amount as the Reserve Bank _ 0.25 percentage points.

Westpac has been attacked by customers and politicians after raisings its variable mortgage rate by 45 basis points on Tuesday, following the RBA move.

NAB is the only major to announce its intentions since the shock Westpac hike.

A short time ago NAB issued a statement saying one of its customers with an average-size $300,000 loan would repay $51 a month less than a Westpac customer with the same borrowing.

Lisa Gray, Group Executive NAB Personal Banking, encouraged Westpac customers to “take a fresh look at NAB”.

“We are determined to be competitive, to offer our customers a better deal and attract new customers to NAB. Today we are sending a message to customers at Westpac, and the other banks, that NAB can offer them a better deal,” Ms Gray said.

“IT’S disgusting, isn’t it?”

Schoolteacher Catherine Sutton is standing where the extra bedroom should be when she delivers an assessment that neatly sums up how millions of homeowners will feel after the over-the-top rate rise by Westpac.

There is no extra bedroom or family room because the banks have taken them with their gouging.

“We have had to hold back on the renovations,” Mrs Sutton, 36, said.

“We count our pennies now, pay the mortgage and make sure the kids are fed.”

As children Lily, 8, and Charlie, 5, chase the family dogs around the backyard of their Orange home, their father Chris explains that it will be a tighter Christmas.

Courtesy of the banks.

“It limits us in terms of what we can do on holidays,” Mr Sutton, 37, said.

The Suttons, both schoolteachers, would like to switch lenders but the fees are too high and all the majors are as bad as each other anyway. “They’ve got you over a barrel,” Mr Sutton said.

Never mind the greediness of the big banks, the repeated rises from the Reserve are pain enough. “It makes it hard to get into a regular pattern of budgeting and saving,” Mr Sutton said.

Mortgage repayments are likely to push many recent homebuyers toward the brink in 2010 as rates rise beyond the expectations and budgets of many.

A Daily Telegraph survey of new entrants to the housing market – conducted before the central bank raised rates for an unprecedented third month in a row yesterday – has revealed many buyers under-estimated the extent of future RBA action.

Forty of the 100 property buyers surveyed said they expected official rates to rise by no more than 1 per cent by December next year.

Following yesterday’s 0.25 per cent increase, the survey suggests these buyers are budgeting for only three quarter-point moves in 2010. However, interest-rate futures predict as many as five more 0.25 per cent rises.

Perhaps of more concern is that even if rates do rise by just 1 per cent, more than half of the respondents said that repaying the mortgage would become a difficulty.

About 40 per cent admitted over spending their buying budget.

Nearly 90 per cent had anticipated the RBA would lift rates yesterday.

But only 17 per cent thought monetary policy action was warranted.

Close to two-thirds said the RBA was out of touch. And 90 per cent believed commercial lenders had the ability to offer better deals to borrowers.