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Home owners brace for rate rise -

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Home owners brace for rate rise

Broadcast: 03/04/2007

Reporter: Helen Brown

Home owners are bracing for an interest rate increase tomorrow.

Transcript

TONY JONES: Tomorrow we'll know whether the Reserve Bank thinks the three interest rate rises last
year have been enough to keep the lid on inflation. There's been growing speculation the reserve
will raise rates again with financial markets now believing there's a 60 per cent chance of that
happening. And that's because while some home owners might be feeling the pinch, there are
indications that consumer and business confidence is still fuelling a robust economy. Helen Brown
reports.

HELEN BROWN: While the Reserve Bank board was pondering on whether to raise interest rates again,
economists were also pondering about tomorrow's announcement and when it comes to this possible
rate rise, it's been one of the trickier calls to make.

TONY PEARSON, ANZ BANK: We think the Reserve Bank has decided to raise rates. The probability of
that was probably about a 60/40. It's not a dead set certain.

CHRIS CATON, BT FINANCIAL GROUP: My suspicion is the bank won't raise rates on Wednesday morning.
It's a close run thing and I could well be wrong here.

HELEN BROWN: A rise in the official cash rate by 25 basis points would take interest rates to 6.5
per cent, the highest in 10 years. And in an election year, the politician in charge of the economy
was being careful about the speculation.

PETER COSTELLO, TREASURER: We have an independent board, it will make its decision according to the
inflation framework that we've given it. Its task is to keep inflation low and if we can keep
inflation low then we can continue economic growth in this country.

HELEN BROWN: One of the nation's main business organisations says an interest rate rise would cost
the economy billions. The Australian Chamber of Commerce and Industry says a survey found that its
members think inflationary pressures such as prices and wages are easing.

PETER HENDY, AUSTRALIAN CHAMBER OF COMMERCE AND INDUSTRY: We're hoping that the Reserve Bank
doesn't give us an Easter surprise with an interest rate increase. If they did, it would impact
across the Australian economy to the tune of something like $2.9 billion.

HELEN BROWN: Only a few weeks ago there were just a few voices saying that another rate rise was
possible. Most analysts thought more time was needed for the impact of last year's three increases
to be seen. Then an assistant governor at the Central Bank, Malcolm Edey gave a speech that sent
all economists back to the figures to have a look.

CHRIS CATON: Prior to that the expected chance of a rate rise in April was just zero. So
essentially all of the rise since then, all of the volatility since then can be traced back to that
speech.

HELEN BROWN: Added to that are this week's figures showing a rebound in consumer spending and it's
this kind of data that many say shows how resilient the economy is.

TONY PEARSON: At the moment given that growth appears to have picked up as we've gone into 2007,
they may well now be thinking that the downside risk to growth is pretty minor whereas the risk of
inflation getting away is much greater.

HELEN BROWN: If the rate does go up, then the bank's accompanying statement will be poured over for
the reasons why. If the rate doesn't change, then the board's next meeting in May is likely to come
under just as much scrutiny. By that time, official figures will have come out showing the
inflation rate so far for the year. The bank's decision will be known at 9:30am AEST tomorrow
morning.