EXPECTATIONS of an interest rate rise by the Reserve Bank of Australia (RBA) gained ground today after new data showed consumers spent a record $20.1 billion in January. The central bank is holding its monthly board meeting this afternoon and a majority of economists expect it to lift the official cash rate by 25 basis points to 4.0 per cent after it unexpectedly left the rate unchanged last month. Financial markets were pricing in around a 70 per cent chance of a rate rise following Tuesday’s data.
The Australian Bureau of Statistics said retail spending jumped by a seasonally adjusted 1.2 per cent in January compared to the previous month, more than double the 0.5 per cent expected by economists. The trend to spend was despite three interest rate rises in the final three months of 2009. Such strength was led by a 7.2 per cent surge in spending at department stores in January, followed by a 2.9 per cent increase in clothing retailing. Food retailing rose 1.3 per cent. The only sector to decline was in cafes and restaurants, which fell 3.1 per cent.
A rise of 25 basis points today will add just under $50 a month in repayments to a $300,000 mortgage. Some forecasts predict the average Australian mortgage-holder will be paying 43 per cent of their income to cover repayments by the end of the year. But economist Saul Eslake said there was no reason to think prices would dip. And property monitor RP Data expects investors to move into the market and sustain prices as first home buyers retreat.
Research company InfoChoice found 274 out of 338 mortgages that it regularly monitors went up by more than the last official 25 basis-point increase, as the majority of banks and lenders added an extra sting for their home-loan customers.
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