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Interest rates jump to 6.5pc

Posted August 8, 2007 09:31:00
Updated August 8, 2007 10:50:00

Rates up: The Reserve Bank has lifted interest rates to 6.5 per cent

Rates up: The Reserve Bank has lifted interest rates to 6.5 per cent (AFP: Torsten Blackwood)

The Reserve Bank says it is raising interest rates by 0.25 per cent to 6.5 per cent, their highest level in 10 years.

Economists had widely tipped the central bank would increase the rate after higher-than-expected annual inflation rate figures for the June quarter.

The rates hike is the fifth since the 2004 election.

"For some months, the Board has recognised that stronger economic conditions were likely to put upward pressure on inflation, notwithstanding some dampening influence from the higher exchange rate," the Bank's governor of monetary policy Glenn Stevens said in a statement.

"As a result, the Board has been of the view that further monetary policy tightening could be required.

"The main factors that had allowed time for further consideration were that, prior to this month, the two most recent inflation results had been unexpectedly subdued, and wages growth had remained moderate.

"However, the high CPI outcome for the June quarter indicated a less favourable near-term outlook, with the implication that any further increases in inflation would take place from a higher starting point than previously envisaged.

"Based on these considerations, the Board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term."

Howard, Costello react

Prime Minister John Howard and Treasurer Peter Costello called a rare joint press conference 30 minutes after the announcement.

Mr Howard says he accepts the Government will be blamed for the rates hike, but says interest rates will always be lower under the Coalition.

"There is nothing in today's decision that suggests the economy is weakening," Mr Howard said.

"Rather, the very strength of the economy is identified by the Governor [of the Reserve Bank] as the very reason for this rates rise.

"I am aware and the Government is aware that this decision will hurt some homebuyers and we're very conscious of that. It will have an impact on some household budgets," he said.

"That is all the more reason that we were very pleased that we had a sufficiently strong budget position to provide tax relief."

Mr Costello says mortgage rates will still be lower than at any time under the former government.

He says the standard variable mortgage rate of 8.3 per cent is 4.5 per cent lower than the average under former Labor prime ministers Bob Hawke and Paul Keating, and "less than half of the notorious 17 per cent".

"The official cash rate of 6.5 per cent is lower than it was when this Government was elected and that is after 11 years of growth and 2.1 million new jobs," he added.

And he warned Labor against its pledged wind-back of the Government's WorkChoices reforms.

"The worst possible thing any Government could do at the present time is to embrace a policy that would put upward pressure on interest rates," he said.

"It will be a fundamental policy reversal that will be bad for the economy and bad for interest rate settings."

'Another rise to come'

Westpac's chief economist Bill Evans is predicting rates will go higher.

"Our forecast is that we'll see one more rate hike, maybe as early as November this year, or if not early next year," he said.

"I think the point is that this economy has done better than any other economy in the world as a result of the emergence of China and India."

The head of the Housing Industry Association has described the rate increase as a double whack for average Australians.

Association managing director Ron Silberberg says not only are interest rates up, but so are house prices.

He says today's rate adjustment means that, on average, households will need to find an extra $40 per month to meet home loan repayments.

Yesterday the Australian Chamber of Commerce and Industry (ACCI) warned that a rates rise would have a $1.8 billion impact on business and the economy.

Swan hits Govt

Opposition treasury spokesman Wayne Swan says the interest rate rise is a blow to millions of home owners across the country.

"It is the fifth rate rise since John Howard said he could be trusted to keep interest rates at record lows," he said.

"And what we need now is not the blame game from John Howard, we need him to roll up his sleeves and put in place some policies to curb inflation and put downward pressure on interest rates.

"This is a serious blow to millions of homeowners and small business people. I'd just like to remind everyone that there have been three interest rate rises since WorkChoices was introduced. Something the Prime Minister neglects to say."

Today's decision came after the US Federal Reserve announced it was keeping its own interest rates steady at 5.25 per cent for the ninth time.

That decision came against a backdrop of volatile financial markets and rising default rates in the US sub-prime mortgage market.

Tags: business-economics-and-finance, economic-trends, industry, banking, finance-markets, government-and-politics, australia

Comments (126)

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  • Alan:

    08 Aug 2007 12:31:18pm

    My partner and I are both 24 and have only just entered the full time workforce after finishing uni one or two years ago. I looked at the property market and decided the only way we were going to be able to initially enter it was to get a 30 year loan! When I did the numbers I realised that on a $300,000 loan at only 8% per annum the interest repayments would be almost $500,000 (or almost $800,000 including principal)!

    If people are really paying over twice the value of their home due to these 25 and 30 year loans then surely this will have a long term effect on inflation? I really question whether we should be allowing people to borrow money for so long. Perhaps we should return to the days where the longest loan was 20 years. Personally I think if you can't pay off a loan in 20 years based on your current income you should settle for less then "upgrade" when you truly can afford more. We've decided to rent for now and save up as much of a deposit as possible before we enter the market. It's scary how the total interest paid goes up exponentially as the period of the loan changes from 15 to 25 years.

    The other thing that I find amazing is people's persistence to live in geographically expensive areas when there are far cheaper areas to live in. Whilst it is a concern, I don't think people's desires to live in "Mc-Mansions" is the only problem. I think another problem is people's desires to live in crowded metro areas like Sydney despite the disproportionately high housing prices. I can't believe people would rather live in the western suburbs of Sydney than to live elsewhere on the east coast. I would hope to think that at least today with the unemployment rate as it's current level, it would be easy for people to relocate to cities such as Newcastle, Coffs Harbour, Port Macquarie as just a couple of examples (sorry for the lack of non-NSW examples, I'm sure there are plenty!). There is so much real-estate on the east-coast (meer kilometeres from the water) and it just doesn't make sense that everyone wants to live in Sydney. Don't get me wrong, I love visiting Sydney, it's a fantastic city (and it only takes me an hour to drive there from where I am in Newcastle!), but I don't see the attraction in living and working in it.

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  • Neil Atkinson:

    08 Aug 2007 12:26:31pm

    Another interest rate rise and the Government is still expousimg that they will keep them lower than Labor. I think they forget that even though interest rates were in the mid 17 per cents with the Hawke/ Keating governments they had dropped to the 9 per cent range when Howard came to power. a drop of 8 per cent and the policies in place for it to continue. We have seen since the introduction of the GST a steady increase in interest rates. To me that appears the bigger failure in fiscal policy.

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  • Ken:

    08 Aug 2007 12:15:52pm

    I agree that probably too many people are living beyond their means, but my sympathies lie with those trying to get their first steps in to the housing or rental market, especially in somewhere like Perth. Even I, middle-aged, and working oveseas as an ex-pat in the oil industry cannot keep my savings level up with the Perth housing market, so what chance does a young person have (whether or not they have a plasma TV)? Seems to me like there are more losers than winners in what has happened in Australia in the last 5 years.
    I am actually one of the few who are mildly pleased with a rates rise since I am saving as hard as possible - the 0.25 % rise will do a little (very little) to offset the 5 year 50% decline in us$ (my salary) to aus$ exchange and the more than 100% rise in Perth house prices. This situation encourages me to not spend my overseas earned money in Australia, and to not bring my employment skills to work in a place such as Perth.

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  • Damian:

    08 Aug 2007 12:07:17pm

    Here's a small economic experiment you can perform in your own home in front of your own TV (plasma or otherwise) ....

    1. Randomly pick any hour between 6:30pm and 9:30pm.

    2. For this hour tune into any one of the commercial networks. This may mean you have to sit through some appalling shows but that is another subject completely.

    3. For this hour keep a tally of the number of commercials that provide a way for you to live outside your means. Include in your tally - Bank loans (but not houses), interest free periods and personal lending services.

    At the end of the hour you will be as amazed, as I was, at the number of these types of services/products that allow you to put purchases on the never-never. I counted 19 in 1 hour on a Tuesday night between 7:00pm and 8:00pm.

    It's no wonder that we are in the perilous state we are in.

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  • Russell Yardley:

    08 Aug 2007 12:00:56pm

    Comparing interest rates to a decade or two ago is a nonesense, the global economy has changed dramatically rendering such comparisons meaningless. The PM should compare his rates against other economices today so against US rates today of 5.25% and if my memory serves me well under Paul Keating the differential was not all that different. I think the booming economies of India and China have had a much greater impact on our economy than any government policy and this current political tit for tat is just stupid politics.

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      • keith:

        08 Aug 2007 12:29:48pm

        This is such a sad and ignorant comment! Borrowed money at any time has a penalty. Keating's Government borrowed enormous sums and we paid for it with huge interest rates whilst countries like Japan had rates in single figures. When your Government allows it's budget to run out of cashit has to borrow. That comes from overseas and the lender must be paid his interest. It has been so for a century or more, and thus comparisons as to why we get into debt and pay penalties are very valid. Thank goodness we've had a decade of strong fiscal discipline and restructuring.

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  • Bob:

    08 Aug 2007 11:39:38am

    Banks will of course raise their variable mortgage and commercial loan rates but what about other loans such as credit cards and personal loans. Banks have huge margins in these products already and can hardly justify raising rates on these loans. Many youny people carry substantial personal debt and don't have a mortgage. $30k - $40k in credit card debt with an income of $40k - $50k is not uncommon.
    Far less people would have financial problems if the Government banned pre-approved credit card increases by finance companies.
    While your at it Mr Costello, ban poker machines as well.

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  • Phil:

    08 Aug 2007 11:38:12am

    I feel sorry for the people who are genuinely struggling to buy a basic house and raise a family. Unfortunately I see way too many couples living above their means. Why do so many require a 4 bedroom, 2 bathroom house with all the latest gadgets? People used to raise large families in 2 bedroom houses with an outside dunny, and most survived quite happily and in good health. What was once called a mansion is now the norm in many of the new suburbs. Maybe its the media influence thats transforming us into a nation of celebrity worshipers and players in the game of Im better than you because I have a bigger house with more toys. Whatever the reason , its a sorry refection on society when a rise of .25% can put a family out of their home but allow a property investor to claim the extra interest as a tax deduction .

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  • David:

    08 Aug 2007 11:37:13am

    The main factor determining domestic interest rates is global interest rates. You judge the performance of a national government on interest rates by how it compares with movements in global interest rates.

    In 1995, immediately before the Howard government came to office, Australia's long term interest rates were the 8th highest in the OECD.

    By 2007 they had risen in rank to become the 5th highest.

    In 1995, Australia's short-term interest rates were the 12th highest in the OECD.

    In 2007 they were the 5th highest.

    This is before account is taken of today's interest rate rise.

    You can see and download the data from the OECD at http://www.oecd.org/dataoecd/5/50/2483826.xls

    The myth that this is a low interest rate government is just that - a myth.

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  • Steven:

    08 Aug 2007 11:32:40am

    How do I reply to comments or agree using the blue links?
    Is there a place to register for such things on this site?

    Moderator: Hi Steven. We're still developing the registration feature, which will allow you to log in and agree with posts. Although that's not ready yet, you should still be able to reply without registering or logging in.
    Moderator.

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  • Burce star:

    08 Aug 2007 11:31:39am

    Mortgage defaults have risen by 329%! in one year...So what will happen in the next 6 months? 1000% rise in defaults? Are we following the USA housing bust? Will John Howard say:..."this is "the interest rate rise we had to have": (et al Paul Keating). Lol.

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  • mac:

    08 Aug 2007 11:30:57am

    Mr Howard and Mr Costello would be aware thatnot only have interest rates gone uo but fees add about another 1%. We have one of the highest interest rates now in the world, higher then the Us, much higher then Japan or most of Europe.

    We have national debt exceeding $ 500 Billion, a housing affordability crisis, high under employment.

    When the current mining boom finishes we will be in dire straits.

    Time for a change in thinking.

    Time to back a new team.

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      • Damian:

        08 Aug 2007 11:58:12am

        Too true. We cannot be the "World's Quarry" forever and as far I can see we are doing bugger-all about putting something in place for when we run out of rocks.

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      • colin:

        08 Aug 2007 12:31:50pm

        Mac,
        relevant comments but history tells us that Labor governments do not have any idea getting fiscal policy under control nor can they resist spending on wasteful policies.
        This not and I repeat not a time for a new team who have no experience that will only lead the economy into deep trouble.
        This governement has paid off our debt that keating and hawke got us into. We don't want another decade or more of government debt

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  • shirley:

    08 Aug 2007 11:30:49am

    $40.00 a month is nothing compared to what will happen if Labour gets into power. The effects of the interest rates of 1988/89 when Labour were in government and the banks charged 18.50% on home mortgages. Now that will really hurt on the sizable loans borrowers have today. The housing market will then be flooded with homes being sold off by the banks because people wont be able to keep up the repayments.

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      • Real Liberal:

        08 Aug 2007 11:38:34am

        Interest rates must be compared with global rates. The high rates under Labor were set against a backdrop of record rates worldwide.

        Australia's recent rates are some of the highest in the OECD countries.

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      • M Smith:

        08 Aug 2007 11:39:01am

        rubbish, learn the difference between nominal and real interest rates! when the nominal rate was 17% the real rate was around 8.5-9%, why do you think Costello doesn't talk about the real rates? Remember that Howard had rates at 22%!

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      • Bob:

        08 Aug 2007 11:43:12am

        At least that will bring the cost of houses down

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      • A.Jack:

        08 Aug 2007 12:08:19pm

        I wish I had your chrystal ball to see what will happen in the future if the labour party gets into office

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  • Sam:

    08 Aug 2007 11:21:57am

    If were not to blame little Johnny, then why does he take the credit for when interest rates were so low a couple of years ago. Now that there on there way up, its time to blame someone else. Not happy John, not happy.

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  • Jules:

    08 Aug 2007 11:17:49am

    I heard on the radio thismorning that a dual income couple could not find affordable housing and could not save for a deposit for their first home. One of this couple is a police officer who would have the benefit of not paying for work clothes, shifts and penalties and the odd bit of football crowd work to top up their income.

    There's a lot of ignorance in the community about money, and it might be time we recognised that it's us, not the government or the big institutions who need to change the way we think about money.

    And perhaps when we pass a window and see a dress or pair of shoes, ask ourselves, how did our grandparents survive the Depression and WWII with one pair of shoes and one good dress?

    Annoying, aren't I?

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  • Bruce star:

    08 Aug 2007 11:16:58am

    Low interest rates is a term that has been politically driven.
    So define low' interest rates? 1% yeh! Japan has that. USA 5%
    low? 18% high? maybe.
    Let's do the maths.

    (A) Hous costing $100,000 at 16% =$16,000
    Consider Inflation 12%=4% real interest rate!

    So question? (B)Is a house today 400,000 at 7% =????? lower or higher than above?

    Consider Inflation 2%=5% real interest rate!

    Answer: High cost ( B)$28,000. 'Low' interest rates? mmm.
    (Example is provided to show high cost of interest/total.)

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      • Steven:

        08 Aug 2007 11:26:44am

        Did you consider the growth in wages over time in that analysis or the relative buying power of the dollar at different times?

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  • Tom:

    08 Aug 2007 11:08:43am

    I am in my 60's and finally own my own home. I must say I find the focus spent of interest rates very intersting.

    It seems today that most "young" people entering the housing market want to start at the level where their parents are today. They want the large homes, cars, TV"s etc etc. and forget that their parents may have worked hard to get where they are today and took many years to reach this level of comfort.

    The concept of saving is foreign to many of them and credit is the way to go. This causes many parents some concern at the amount of debt their "children" are running up.

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      • Frank kay:

        08 Aug 2007 11:15:28am

        very true, this is a " must have it now " society with very little worry about the consequences of heavy debt.

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      • ROB:

        08 Aug 2007 11:37:34am

        I work full time, in my thirties and have been saving a long time. I simply cannot afford to buy an average house on my average wage. Most people I know dont want a large house, just a house to bring some stability to their lives. This is now the forgotton Australia dream - thanks for nothing baby boomers!

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      • Nickg:

        08 Aug 2007 12:02:25pm

        Yes Tom, you're right. We are a high debt economy.

        This high debt in part reflects the redistribution of public debt to private debt under our current federal government. This high debt has fuelled high consumer consumption, the very consumption that the treasurer loves to sight as a sign of the health of our economy. These consumption and borrowing patterns have been actively encouraged by the current federal government.

        I see it as a sign of the vulnerability of our ecenomy, because this consumption is unsustainable both economically and environmentally. Economically because if we can't afford to service these record high debt levels, then economic activity levels will fall. Environmentally because high consumption equals high environmental degradation due to environmental costs still being allowed to be largely externalised by most businesses.

        Combine both these factors together and it leaves us highly vulnerable. Australian living standards are built on borrowed time. Someone will inevitably be left to pay the bill.

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      • pg-melb:

        08 Aug 2007 12:06:27pm

        I'm so sick of reading comments from baby boomers such as yourself Tom, who claim that if we followed the same principles as your generation that we'd be ok. Let me tell you something, I'm not after a big flashy three-four bedroom house, right now I'd be happy to settle for a single bedroom hovel! I don't have a flash plasma or LCD TV, I don't own a coffee maker, I don't have expensive shoes and clothes and I drive a second-hand car I picked up for under $10k! I also have an ING savings account so I *have* saved money!
        Housing prices have sky-rocketed at rates not seen in decades, often at double and sometimes triple digit percentages. Most baby boomers such as yourself are playing the property market and subsequently creating the record price increase. As for working hard, young Australians are working harder than ever and doing longer hours.
        Don't EVER write to this or any other forum blaming our generation for housing affordability, which has essentially been put out of reach thanks to YOUR generation.

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  • Andrew:

    08 Aug 2007 11:07:13am

    Sounds like the Liberal Party propaganda unit has already hit this web site early and hard. I have never heard so much gumph.

    The basic fact is that you can not have it both ways. You can not take credit for low interest rates (as Howard has done) and then blame everyone else when they go up.

    And as for blaming the borrowing public for being too highly mortgaged, this laissez-faire government should have been putting pressure on the banks to tighten their lending policies years ago. They have been literally throwing money at people who have not hope of paying it back.

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      • Richard:

        08 Aug 2007 11:17:29am

        Housing non-affordability is an indictment on both sides of politics. A dwelling is an ultra basic item and should be made readily available by more aggressive policies - curbing "investment" houses etc.

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      • John:

        08 Aug 2007 11:24:07am

        No one forced people to take the money the financial institutions threw at them.

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  • Steven:

    08 Aug 2007 11:05:02am

    I just bought a Plasma TV, Coffee Machine, 4 Bedroom House, New Car, Mock Leather Lounge and a George Foreman Grill with no re payments until 2010. I consider this to be an investment, not expenditure. I am sure I'll be fine. Any comments or suggestions?

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      • zuggy:

        08 Aug 2007 11:19:17am

        Did Peter and John give you a free set of steak knives to go with that?

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      • Leigh:

        08 Aug 2007 11:19:37am

        A typical example of how people get themselves into financial debt. Living above your means is great for the short term, but disastrous for long term. I feel sorry for people like Steve who seem to be of the opinion that they should have everything they want right now and not have to save for it.
        I can remember moving into my first home and not having the money to paint it internally for four years.
        As far as no payments until 2010 when most of the purchases are outdated or broken down, what happens then when you have to pay for them and then pay for their replacement value? I would suggest that this is the perfect recipe for disaster!

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          • Allan:

            08 Aug 2007 12:29:50pm

            I think you will find Leigh that Steven "no repayments until 2010" was taking the Michael!

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      • Jules:

        08 Aug 2007 11:20:02am

        You might not be paying for these items now, but they've factored into the current CPI rate as purchases and you're directly responsible for the increase in interest rates.

        But don't feel bad about it. Just open another beer and enjoy it while it lasts.

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          • Vital:

            08 Aug 2007 11:59:25am

            It's just not the housing sector, what about the small business with an overdraft, they have to put their prices up, and up and up, it's the domino effect.

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      • MLee:

        08 Aug 2007 11:22:55am

        ENJOY!....til New Year's eve 2009

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      • Mic:

        08 Aug 2007 11:31:00am

        Great post.

        I'd suggest just renting out the 4 bedroom house and
        factoring in any extra interest rate costs on all this stuff
        into the rent price.

        That way some poor sod who can't afford any of this stuff
        coz all their money is going out on rent already, will cover
        things.

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  • Bradley:

    08 Aug 2007 10:52:33am

    Perhaps this may be a touch cynical of me, but if people are going to go to the wall because of a measly 0.25% interest rate rise then perhaps they shouldnt have gone into the home market in the first place!

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      • Max:

        08 Aug 2007 10:59:26am

        Absolutely agree. But unfortunately alot of people are spending more than what they can really afford. They seem to have forgotten the many holidays, new TV etc... they have enjoyed.

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          • Sue:

            08 Aug 2007 11:23:02am

            I believe that people these days do not hreally have a choice but to get in so far over their head with debt. As a single person I am finding it impossible to own my own home without taking out an exorbitant mortgage. I'm sorry to those who believe that I should own a house but have nothing in it - no tv, no lounge, no appliances... as well as be stuck in there 365 days a year without taking time off for a holiday - especially seeing that I work approximately 11 hours a day and don't get paid overtime. Gee, I guess I'm just not realistic..... or am I?

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      • Nick:

        08 Aug 2007 11:31:22am

        It's not the 0.25% that's tipped them over the edge... it's the last FIVE 0.25%'s that haev pushed people too far. That's FIVE increases since Howard said they wouldn't be raising interest rates at the last election.

        I am so sick and tired of hearing the same old story from the Libs, 17% rates, always lower blah blah. At least when the rates were 17%, houses were still affordable. Was it not the LIBS that caused the problems in the first place? Was it not THEIR economic management that forced those interest rates upon us?

        Yet more spin and mis-truths coming from the Team Howard.

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      • Mic:

        08 Aug 2007 11:39:26am

        Not all that long ago TV shows like 'The Block' & 'Hot Property'
        were at the top of the ratings and were pushed on us by the
        networks. The sentiment was ... that if you were'nt making a
        killing on the property market you were a sucker.

        No politician said a word at that time that all this irrational
        exuberance may lead to woe at some point.

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  • Marc:

    08 Aug 2007 10:44:32am

    Australia Interest rates will start to drop once it reachs 9.25 per cent, regardless who is in government, fasten the seat belt having a ride for now.

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  • Jock:

    08 Aug 2007 10:34:42am

    I've paid off my house and am now dept free. If other people did as I've done instead of buying plasma tv's and expensive coffee's then they wouldn't be winging in this forum. Don't blame Howard for your extravagant lifestyles.

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      • Tom:

        08 Aug 2007 11:10:56am

        Hi Jock

        I agree with you on that. It seems to me that credit is far to easy to get these days and that saving is a foreign concept.
        It all must end one day.

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  • Dave:

    08 Aug 2007 10:33:33am

    Good day,

    It amazes me that some people just really don`t understand how an economy works.

    Australaia has very low unemployment that means there is a lot of money trying to find a home.

    Interest ging up today is what has to be expected, in fact they shoud be a lot higher.

    Investors like myself with good jobs paying in excess of $120,000.00 per year look for somewhere to earn good income off an investment.

    Beause of low interst rates a couple years ago, i was able to by 4 houses at very good prices but more importantly at a very low interest rate

    When i bought houses in townsville, Mackay, Rockhampton, and Brisbane , i was able to get finance at below 7.00%

    I would like to thank the reseve bank for being so slack as to let me have rates as low as this.

    Should the reseve bank of started raising rates a lot earlier then house prices would not be as high as they are now as the yield would not of been so high, therefore investor demand would of been lower.

    Anyone who believs interest rates should not go up have their head in the sand.

    If they don`t go up then investors will buy more houses and the kids of today will never be the familys with houses of tomorrow ad house prices will continue to rise.

    Don`t blame John Howard for interest rates rising, his government doesn`t set them the reserve bank does.

    It is the fault of the reserve bank for not acting sooner to curb demand.

    Dave


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      • Vince:

        08 Aug 2007 11:31:01am

        Investors buying up all the cheap property and drive up the property price......how do you expect young people (kids') to afford anything??? Interest rate rise will hit anyone....especailly people who don't have any savings.

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      • JA:

        08 Aug 2007 11:57:57am

        You are right re. Reserve Bank not acting sooner.

        However, the government's slack fiscal policy has more to do with it. Exorbitant Capital Gains Tax relief after holding an asset for over one year added to unlimited negative gearing opportunites means that investors will always will win out at the expese of other people and will keep prices high.

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      • Jangari:

        08 Aug 2007 12:04:06pm

        "It is the fault of the reserve bank for not acting sooner to curb demand."

        I think it's clear that the Howard government has been pressuring the reserve bank for years to make their fiscal policy look good.

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  • Damian:

    08 Aug 2007 10:33:11am

    This interest rate was always looming and if it wasn't now, it wouldn't have been too far off.

    There is no incentive to save, to plan ahead, to have something set aside for a rainy day.

    The ingrained Aussie ethos of striving to better yourself, so admirable in so many other facets of our society, shows its dark side with our rush to have the latest, the greatest or the flashiest gadgets in a bid to show others (and maybe ourselves) that we are doing well..

    This phenomenom is not restricted to us as individuals. I had hoped that this time of extreme national wealth and economic growth would produce some forward-thinking national pulic infrastructure projects such as a snowy mountains scheme or a highspeed interstate highway network that would soften the landing when the current economic party is over and enable us to take advantage of future opportunities. It hasn't happened and the time has passed for it to start now.

    While we as individuals, corporations and governements continue to live outside our means and not plan ahead, the impact of interest rates rises and upward pressure on inflation will continue to hurt us all.

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  • Dave:

    08 Aug 2007 10:28:58am

    This means a lot for people like us that have just opened up mortgages.

    However, until this election both Labour and Liberal remained aloof to the cost of housing. Even though Liberal policies made the situation worse, the Labour blokes just sat back and did not pick up the signals of an issue until recently. Liberals still have not acknowledged the issue and think it's a fringe issue like the environment.

    Sydney will soon become a San Francisco of the early 90's when things became so expensive business capital left the city and it became an overpriced empty nest.

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  • Greg:

    08 Aug 2007 10:28:07am

    Im an Aussie in the US. Im generation X and spent my 20's studying to get highly qualified. Problem was I had no money. My parents never owned a house and I started to work in fairly low paying work. Frankly I couldnt get an appropriate job for my PhD. Now im in the US and earning 3 times that in australia and well into six figures. Frankly the rewards are not in australia and the prices paid by consumers for a house in Sydney is crazy. I am waiting for the collapse.. then maybe I can come back and afford a house. the government has to accept responsibility for a third of the market being an investment vehicle. That should never have happened, and now the average joe is paying for something they can't afford

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      • James:

        08 Aug 2007 10:40:06am

        Policies such as 'negative gearing' turned the housing market into an investment market...

        But Aussie politicians will never touch 'negative gearing' because all of them use it to reduce their tax... meanwhile... the Aussie dream for any poor soul under 30 has vanished!!!

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  • Ron N:

    08 Aug 2007 10:27:06am

    I spent the largest part of my over 40 years in business, paying interest rates of between 13% and 18% on average, and up to 23% in the dark days of 1981-82. On one equipment contract I took out in 1982, a major equipment lender hit me for 30% interest, and I had no choice but to pay.
    In my nearly 45 years in the wokforce and business, I have never known a period so long, as in the last 5-6 years, where interest rates have been so low, and there's hardly a person in business, who isn't making a killing.
    Most wages earners are also doing very well, thanks very much. Any financial problems stem from people wanting too much.
    In my younger days, a new car was a total luxury that only the rich could afford, and acquiring a new house and land was also a huge struggle.
    Nowadays, people expect to be able to have a new car, a new house in a good suburb, a boat or caravan (or both), the house full of the latest expensive gadgets, from plasma TV's to every labour-saving device under the sun .. all on an average wage.
    We have become a greedy, selfish, hedonistic consumer society, with high expectations, and become upset when those expectations can't be met.
    The Media and saturation advertising have played a large part in this, and I think a good dose of reality, as in a severe recession, is needed to bring values, and expectations, back to earth.
    Too many people blow $5000, $10,000 or $15,000 on toys nowadays .. whereas 30 or 40 years ago, that equivalent amount was considered a major purchase, and carefully outlaid on securing reasonably-priced housing or property, or some other secure asset purchase.
    I am greatly concerned at the amount of imported luxury toys being purchased on a grand scale, which do nothing for the nation in the long term.
    We are spending our hard won, mineral, IT, scientific, and high salary, wealth, on far too many BMW's, Mercs, luxury boats, "collectibles" .. and on seeing who can pay the most ridiculous prices for "desirable property" in "exclusive" suburbs.
    Sooner or later, this will all come back to bite us .. and if China sneezes, maybe it will be sooner, rather than later.

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      • eugen alba:

        08 Aug 2007 10:57:48am

        In the 40 years in your business you didn't have to pay GST.

        You used to be able to buy secondhand cars , eat out , go for a holiday and get a haircut. And there was no 10 % added to it.

        You imply they were bad days.. In your calculation dont forget to add the HIDDEN 10% in all goods and services it all adds up my friend..

        that is why this Howards Government keep saying we are doing a great job.. they aren't going to fool me..
        Ah yes I have an accounting background.

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  • andrew:

    08 Aug 2007 10:26:45am

    lets make it clear. its not just luxury items we all now have to pay for. Lets take education, health, infrastructure, insurance, essential services. All things we pay for now out of our pocket. Household debt is at all time highs. This is not because we keep buying plasma tv's. How many tv's can you watch at the same time???

    Lets be serious about this the Trade deficeit is more than alarming - and as trend productivity goes down inflation goes up - interest rates go up.

    Its true we've had balanced budgets. But when GDP is paid out of the pockets of ordinary households, and government outlays are reduced to around 24% of GDP and revenue to GDP is 26-27% you automatically get balanced budgets and a surplus.

    In 1993 the centralised wage fixing system was removed, tariffs were dramatically reduced (meaning cheaper and cheaper goods) and flow on effects of the float of the Aussie dollar began to be realised in the form of lower prices and therefore inflation and dramatically reduced interest rates. This all was realised in the final years of the Keating ALP government. Trend productivity was high (approx 3%), wages steady (2%), leaving inflation and interest rates low.

    Although Howard and Costello inherited this golden triangle of economics from the ALP, but what has happened that has once again forced interest rates to raise to their 10 year high? A lot is boasted by the Howard government on their economic management but what have they done? Today we see a different picture in terms of economic indicators. Under Howard/Costello trend productivity has dropped to under 1%, wages are at 4% and there we have inflation at 3% and rising.

    Its about time Howard and Costello are exposed as the economic manger frauds they are.

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  • Bruce:

    08 Aug 2007 10:21:43am

    This interest rate rise has already been "factored" in to the currency, which is down some 3 cents on it's recent highs.

    Like another comment down the list, I have to say I have never had it so good.

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  • Mark:

    08 Aug 2007 10:20:44am

    Gee I really enjoyed my tax cut while it lasted! Now my mortgage payments have gone up by double what I'm receiving in additional income since July 1. Mr Costello I wish you'd kept your tax cuts instead and invested it in services instead of adding further fuel to interest rate rises.

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  • PaulyG:

    08 Aug 2007 10:18:05am

    I have a sub $100,000 Mortgage, one of the 'lucky' home buyers to enter the Mortgage belt prior to the Qld Real Estate boom. Even so this .25% rate rise will hit my family hard.

    I have family members who are have a $350,000+ Mortgage
    (which is about the norm now) and this willl nearly cripple them.

    'We've never had it better' Howard is so far out-of-touch he's off the planet.

    I cry for my family members and the rest of the struggling families of Oz.

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      • Dale:

        08 Aug 2007 10:27:26am

        some folks can't afford a housing loan at all.
        Why don't you pity us instead of thinking about how you'll be affected by a rise? Again it's all selfishness.

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          • PaulyG:

            08 Aug 2007 10:40:19am

            Dale, of course! I certainly should have included the fact that housing affordability, including buying AND renting, is now worse than ever. I have friends I am crying for too who can't even rent a small unit! Cost of housing has triple since 2001 in my area.

            Also, of course, small & large business will also be affected.

            I pray they don't increase prices to offest their increase costs!

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          • Max:

            08 Aug 2007 10:46:37am

            the harsh reality is a lot of people have taken on too much they are afford. If they have done their maths prudently and realistically, they won't be in the current state of fear now.

            The government have given us good economic years but we never thank them for it, did we?

            We blew it up by thinking good times will last forever....oh well, like anything what goes up must come down.

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  • eric:

    08 Aug 2007 10:17:42am

    My take on this is the ludricous attack of John Howard et al on the States causing the interest rates hike with their borrowing.

    The simple question is, can they service their borrowings?

    Answer, yes they can, easily. It's about time the media stopped reporting Howards' comments like Marys' little lambs and challenged him on what he'd do, instead of bagging the opposition.

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  • Paul:

    08 Aug 2007 10:17:28am

    It would be a pleasant change if politicians (on all sides) came clean and admit that they cannot take credit or blame for the general movement of interest rates. If I were Kevin, I would admit this and further demonstrate that John is playing political games.

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  • Dennis:

    08 Aug 2007 10:16:22am

    The Liberal government has made many mistakes, but I don't think that economic management is one of them. I think that Mr Howard is correct in saying that interest rates would be much higher under a Labor government.

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      • Thom:

        08 Aug 2007 10:39:50am

        After 11 years of deceipt, frankly Dennis, I'm more than willing to take a chance and test that theory!

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          • Dee:

            08 Aug 2007 11:19:01am

            And then Thom, you will be back here complaining of not being able to afford small appliances, let alone houses.

            The economy is booming and that is thanks to the federal government. If you don't believe me, spend next Saturday wandering around a major shopping centre, new car dealership or somewhere like Ikea. People are spending money hand over fist. House prices are out of control and that is the fault of the Reserve Bank for not matching interest rates to investment expenditure. We should be paying a higher interest rate on a much lower average house property than the other way round because there is much more fluctuation in interest rates over time than there is in average house properties (which tend to just climb).

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              • Nickg:

                08 Aug 2007 12:23:29pm

                Dee,

                have you ever stopped to contemplate who's money all these people are spending? It's borrowed money, buying non-productive goods (i.e. the goods do not lead to further economic activity) such as TV's and other compliances. Reduce peoples ability to borrow money to realistic levels, and all of a sudden the picture you paint will be very different. These malls will deserted. And yes you're right...we have the current federall government to thank for this.

                Good economic managers??? Pigs Bum.

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  • Rob:

    08 Aug 2007 10:10:19am

    So interest rates go up to dampen spending but will it maybe for some but what about those that have money in the bank? Surely they will paid more interest hence will have more to spend. It might be suggested that increasing interest merely transfer cah from one segment of the comunity to another.

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      • Dale:

        08 Aug 2007 10:20:18am

        Rob the problem is, that for example with my bank, my savings interest rate does not go up, even when borrowing cash rates go up. The banks are a law un to themselves

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          • Rob:

            08 Aug 2007 12:20:53pm

            Dale why do u not change banks possible to get 6.6% on call.

            Eugen yes there is a difference but when interest rates go up so do deposit rates so those that have saved have more spending power. Rising interest rates could be a benifit to retirees

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      • eugen alba:

        08 Aug 2007 10:22:16am

        Reply to Rob.
        Raising interest is not an equal sum game..where have you been ?
        The interest on money in the bank is a lot lower than the money being lent to people and for business.
        The cost to business will then have to be put on goods and services.. and guess who ends up paying it.. certainly not John Howard.. they just got a gave themselves a hefty rise to more than cover it..
        Didn't John Howard promise low interest rates ?
        Didn't he say many times no GST ( biggest money earner for Govts.)
        Needless to mention the Children overboard affair etc. etc.

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          • Kinga:

            08 Aug 2007 10:30:54am

            Interest rates ARE low. Remember when it was 19%?

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              • James:

                08 Aug 2007 10:49:27am

                Do your Maths correctly Kinga, It may have been 19% but mortgages were much lower then. You have your head in the sand. Not everyone can afford a house these days or a mortgage. I don't believe you understood how much this will impact people.

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              • Austin:

                08 Aug 2007 11:32:23am

                Reply to Kinga No. 2
                What people also need to realise is that it's not just mortgage debt that's a factor, Australian's thesedays have massive personal debt too. Interest rates affect credit cards etc and in the 80's people weren't carrying as much personal debt. I read recently that in the present environment interest rates would only have to reach around the 8-10% mark for an equivilent effect to the late 80's 19% black-days to return.

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              • RossW:

                08 Aug 2007 10:52:29am

                Remember when it was 23%? John Howard doesn't. He was the treasurer.

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              • eugen alba:

                08 Aug 2007 11:06:20am


                Thats exactly how it looks but in reality
                if you consider the additional hidden cost of GST
                the hidden 10% on most things from used cars , dining holiday,
                Telephone, electricity , you name it..
                this is not just 6.5% .
                Talk to charity groups and see how many people are just not coping in this " age of economic prosperity"

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  • Nicole:

    08 Aug 2007 10:05:10am

    This rate rise is ridiculous, i've just had my loan approved and i have to still cop this rate rise! That is unjust in itself.

    Johnny Howard needs to go, people are too stupid to realise that before every other election he has made some big announcement that will "help australia" just so he can back hand us as PM with things like rate rises - WHY lower taxes when home owners are just going to make up that short fall by paying more interest? -

    What is australia coming to? -

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      • Richard:

        08 Aug 2007 10:14:40am

        Nicole, you should have "fixed" your rate with your lender. That would have cushioned you against the rate rise and tempered your anger against the PM.

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          • Peter:

            08 Aug 2007 10:31:46am

            Having had a colleague go through similar, the banks have a clause in their contracts that until the property is actually settled, the interest rate can be changed without notice.

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          • Max:

            08 Aug 2007 10:31:49am

            I understand your frustration and Richard is right about 'fixing' your rate. The mortgage lender should have advised you. But you should also see this coming....I mean this is the trend in the whole world, NZ and UK have also recently suffered rate rises. Inflation is affecting the whole world and not only Australia.

            You will hate the government more in future had they not implement rate rises now.

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      • Voter:

        08 Aug 2007 11:01:10am

        If you thought that by getting a home loan you were personally going to be immune from rate rises/falls in morgage rates you must be dreaming. I am sure you would be the first person complaining when interest rates drop.

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  • Lachlan:

    08 Aug 2007 10:04:38am

    The RBA sets rates largely independent of the Govenment so rather than blame "Johnny" the public should be more conscious of their borrowing for luxury goods and services.
    This latest rate rise will start to put pressure on negatively geared property investors who are loosing money hand over fist with high expenses (like stamp duty, rates and insurance), low yield and now high rates.
    It may actually make housing more afforable longer term by squeezing many speculative investors out of the market!

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      • Al:

        08 Aug 2007 10:34:01am

        The RBA is independant of Government.
        Increasing interest rates is a policy to curb inflation which in itself is fuelled by expectation of inflation. The recent CPI increase is the result of factors outside Govt like drought , oil prices etc .

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      • Bryce:

        08 Aug 2007 11:05:39am

        ummm, do you need to look up negative gearing perhaps? You get a tax break on interest payments, rates, etc. You also pass the interest rise on to tennants. The whole point of negative gearing is to enable this type of rate rise to be refunded to encourage investment, that lesson was learnt in the 80's. Why would you want to squeeze investors out of the market? That will only put pressure on rental prices.

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          • Dan:

            08 Aug 2007 11:57:45am

            Brilliant Bryce, and as a 20 something gen-x'er with debt up to his eyeballs, who rents... I can't wait to see what this interest rate rise does to my rent.

            I understand it's people like me who would rather rent, and have no control with cards who is making the economy worse.


            The idiots who believe that Howard or any government has any control over interest rates are deluded by his lies!

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  • David:

    08 Aug 2007 10:04:08am

    This increase and potentially another rate rise before year end will see a marked increase in home loan defaults and small business bankruptcies. Monetary policy is a blunt instrument. Perhaps now is the time for greater focus on fiscal measures to stymie inflation pressures (the Reserve Bank's key concern).

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      • Tye:

        08 Aug 2007 10:42:12am

        So what do you suggest, increased taxes, if so on whom?

        If not increased taxes then you must mean reduced spending ... on what? Health Care? Infrastructure?

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          • eugen alba:

            08 Aug 2007 11:51:07am

            This is a Federal Election Year.. if anything, Howard and Costello will spend massively to get themselves elected.
            They are smart enough not to trim the budget now.
            They have an arsenal of sweeteners up their sleeves which will be released leading up to the Election.


            Effect.. it will fuel more inflation..

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  • Dean:

    08 Aug 2007 10:00:32am

    Managing the federal economy is an extremely difficult task and one that I certainly would not wish upon anyone. Although we've experienced many consecutive rate rises, the Cash Rate is still relatively quite low. All that we will hear about tonight is the "Aussie Battlers" - if only a 0.25% increase is going to send 'strugglers' to the wall, they need to have a good hard look at their financial positions and revisit where their priorities lie. But I have to agree with Johnny H, I've never had it so good.

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  • Shane:

    08 Aug 2007 9:58:22am

    Will the interest rate increase cause a further rise in the A$. If so how badly will export profits be affected?

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      • Mehmud:

        08 Aug 2007 10:46:18am

        Hi Shane

        Rise in interest rate results in appreciation of the currency. In simpler wordds, if RBA raises rates, One AUD will buy more of USD. I believe the recent rise of of AUD has already factored in the rate rise, i.e. the currency & bond traders have been anticipating this rate rise, hence the increase in demand for Aussie currency prior to RBA's rate rise. I'm no economic forecaster, but I don't think AUD will go for another jump right away (unless another rate rise is in the horizon by the end of the year, which is being talked about in the media). If you're in the export business, God be with you, 'cause certainly AUD isn't.

        Regards

        Mehmud

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  • Vizza:

    08 Aug 2007 9:57:57am

    As a manufacturor, I feel that this rate rise will only increase the Aus$. Our business is struggling, they want to help us and yet they continue to make decisions to destroy us

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  • Eric:

    08 Aug 2007 9:53:34am

    I can't believe how many people complain about the interest rises. Like Pete said, if people stopped spending their money on luxury items and racking up credit card bills, pressure would not be on inflation. Interest is raised to slow spending. people need to be educated about this. They blame the government for these rises, but if only they knew it was themselves doing. The prime minister is right in saying we haven't been better of as much as we are today. Have you seen all the new cars driving around. Plasma sales are on the increase. We own bigger and better houses. If you just think what our parents had out our ages (mid 30's). We have so much more and better than what they did. Inflation keeps growing because we keep spending and buying.

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      • gbailey:

        08 Aug 2007 10:05:19am

        Should we just work work work and not enjoy the fruits of our labour.Spend and be happy.

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      • Terri:

        08 Aug 2007 10:07:02am

        It is not the actual increase in the rate that is the issue, nor comparisons to interest figures in previous decades - the fact remains that households now have far more debt than ever before, and its not because everyone is being greedy - in the 60's (our parent's era) a single wage could support a family, a car in the garage, modern appliances and a decent house.
        These days you couldn't do that - you need at least 2 full time incomes. What is the most problematic, however, is that to get into the housing market you are looking at prices that would have been undreamt of even just 5 years ago - in Melbourne, the median house price is around half million - more if you want to live within 45min drive of the city - you can live further out, but the community infrastructure is poorer and you spend a lot of money on skyrocketing fuel prices. Furthermore, the reduction in permanent positions and job security means that people are working twice as hard to pay debts that are just increasing. I don't think anyone can believe the Howard's government's continued assertion that they are better economic managers - they obviously don't have mortgages to consider or know how much bread and milk and groceries cost.

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          • Kinga:

            08 Aug 2007 10:28:39am

            I don't agree. You CAN have a good house, two cars, send kids to a private school and have broadband and a whole host of other luxuries that our parents only dreamed of all on ONE wage. I know because my family do it. I'm the only breadwinner of my family of five. It's a total fallacy to believe u both have to work and in fact it is the ready availability of two income families that is driving the house prices UP. The Real Estate agents know you can afford to spend more on a house because you are both working. So you DINKs and DIWKs are driving up the prices for the rest of us (and depriving your kids by putting them in childcare). Not to mention that new houses are ENORMOUS compared to what we used to live in. A lot of kids don't even share bedrooms these days! Enormous houses with tiny backyards.

            Even my parents are better off now than they were in 'their day' as the price of luxuries has fallen and our incomes have gone up and they're on a PENSION!

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      • Bryce:

        08 Aug 2007 10:41:38am

        Eric, you say "we have it so good" yet your point is that we have it good on the back of credit! Make up your mind. Do we own plasmas and luxury cars because of the great financial position of the country like you and your little mate Howard keep drumming into us, or are we borrowing beyond our means on the back of that optimistic myth. You can't have it both ways!

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  • Ryan:

    08 Aug 2007 9:51:09am

    The biggest problem is people want to much now.
    There not happy having saving they want to spend every dollar that comes along. You should set yourself up with a buffer zone for challenges like interest rates!

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  • Smythe:

    08 Aug 2007 9:49:54am

    'And interest rates will stay lower under the Coalition than under labour' - please retire John Howard and take up a job peddling used cars...

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      • Phil:

        08 Aug 2007 9:55:36am

        You repeated what John Howard said: 'And interest rates will stay lower under the Coalition than under labour'

        To use this statement as a negative agoinst the Govt you need to predict what interest rates would have been under labour. My view - higher

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          • John E:

            08 Aug 2007 10:33:35am

            That may be your view, but as many said at the time the statement was made..."It is an unprovable assertion by John Howard"

            My view, which is equally unproveable as yours, is that different policies under a Labor government could easily have kept rates lower.

            He also promised to keep rates at record lows......that seems a bit hollow now dosen't it?

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              • Geoff:

                08 Aug 2007 11:26:49am

                You show me where Howard said that he would keep rates at record lows. Do you work for the ABC? Next you're going to tell me that an election was decided by Tampa.

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      • Lionel:

        08 Aug 2007 10:01:49am

        Had we had a labor Government it is likely that interest rates would again be now in double figures. The Government has now paid the Labor's debt and while there is consumer spending the Government is not wasting our funds paying off Labor's debt any more.

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          • matt:

            08 Aug 2007 10:20:41am

            Yeah, payed the labor debt by selling Public assets (telstra-which turned out to be a disaster for mum/dad shareholders and a white-elephant/laughing stock as a privately owned company), introducing a GST and befriending big business at the expense of the littler-guys.
            Howard should NOT have used the "Libs will keep down interest-rates line" if elected in 2004 when realistically, he has less control over Rates than he pretends. He doesn't control the spending habits of Australians,the boom in China and India, the fall of the US$, the rise of Gold price or most of other factors that contribute to the world-wide economic situation. Yet he continues to claim this. BTW, do you really want Peter Costello running the country in less than 12 months? :-0
            Don't get me started on the war in Iraq or George Bush.

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  • Gavin:

    08 Aug 2007 9:48:02am

    I wont get in to the political arguement re:interest rates but what I would suggest is why not use GST rates as an anti inflation measure rather than interest rates. Rising interest rates affects everyone and usually more so those who are struggling. The GST is a tax on spending and as such by increasing the tax on spending will hurt those spending more than those who spend less. May be a combination of GST & interest rates could be used. Interest rates are such a blunt instrument and have many unintended consequences. I welcome other thoughts.

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      • Marcus:

        08 Aug 2007 10:05:46am

        That's an interesting idea. The problem is that the Reserve Bank does not control the GST rate; the states do. Every single state of Australia would have to agree to either put the GST rate up or down.

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      • James A:

        08 Aug 2007 10:23:37am

        Giving the reserve bank the ability to adjust the GST rate would be an excellent way to give them a better way to control the economy. Indeed moving the Treasury as a whole to an independent body would be ideal.

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  • Jason:

    08 Aug 2007 9:39:56am

    9 rate rises in a row and the 5th since the last election - these have more than eaten into the tax cuts and wages rises over that time, let alone grocery and fuel prices.

    When the PM says we'v never had it so good he show's just how much out of touch he is.

    Johnny, it's time to go.

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      • Ryan:

        08 Aug 2007 9:46:58am

        If people were a lot wiser with there money then interest rates would not affect you as much.
        Yes there are people that will suffer but that's because they were or are not clever with there money!

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          • Denny:

            08 Aug 2007 10:56:39am

            What? Everyone suffers when they can't afford housing. Financial management skills or not, housing is getting out of reach for many Australians. They just aren't earning enough.

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      • John:

        08 Aug 2007 9:54:38am

        The RBA has one task: to keep inflation within the range 2 - 3 per cent over the cycle. It has one instrument: the cash rate. Inflation is caused by one thing: growth in money supply relative to output growth. Inflation is not caused by changes in petrol prices, banana prices, income tax rates or state government borrowing. The CPI is towards the upper end of the RBA's target range now because the RBA cut interest rates too much in 2001/02, generating excess credit creation. It is as wrong to blame the federal government for the current rate rise as it is for the federal government to have claimed credit for past low rates.

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          • Martin:

            08 Aug 2007 10:24:42am

            The level of money supply is significantly impacted by fiscal policy. Given the strength of the global economy and its impact on Australia's terms of trade the government should be running a much higher budget surplus, and not spending our money on propping up unsustainable hospital facilities. It should however have invested significantly in infrastructure years ago which would reduce the bottlenecks which are now impacting on exports. These two failures are the main cause of current inflationary pressures, so it is absolutely correct to lay the blame for interest rate rises at the door of the federal government.

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              • John:

                08 Aug 2007 11:57:53am

                The money supply is largely determined by the cash rate. I can see little public policy justification for allowing the suplus to rise as economic acitivity and the terms of trade improve. If the public's demands for government services are independent of the level of economic activity (which, of course, they are not) then all of the output growth and terms of trade gain could be allowed to flow through into higher consumption spending. This would cause the CPI to rise (once off), but this is not inflation. You seem to be arguing for the government to do a lot of extra saving on our part. For what?
                Australia does have infrastructure deficiencies, largely caused by 15 years of state government fiscal conservatism. State governments should be borrowing to finance public infrastructure. Note that it is *public* infrastructure that they should be financing. Infrastructure that largely benefits mining companies should be financed by those companies.

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          • John E:

            08 Aug 2007 10:37:24am

            Inflation, hence interest rates, are the result of BOTH fiscal and monetary policies followed by the government and the Reserve Bank.

            These policies should be used in unison so that one arm does not negate the other. Giving tax relief while the economy is at it production possibility fontier is simply asking the Reserve to use the monetary levers to bring the economy back to a state at which we can grow with a minimun of inflation

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              • John:

                08 Aug 2007 11:51:40am

                I disagree. I agree that the economy is on its PPF. The federal government can give tax relief in two ways: reduce its surplus, or cut spending. If it reduces its surplus, net Australian foreign savings decline, and private consumption increases. This requires an increase in the price *level* (ie, real appreciation to reduce annual net foreign savings), but this is once off and not the same thing as inflation. If the federal government reduces its spending, then the composition of economic activity shifts from the provision of public goods to the provision of private goods. I cannot see an inflation story here. Your argument appears to lead to the conclusion that we should be taxed harder to save ourselves from inflation. I agree that shifts in fiscal policy can cause once off movements in the price level, but "inflation" - a rate of growth concept - is caused by money supply growth exceeding output growth.

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  • pete:

    08 Aug 2007 9:39:53am

    you people need to stop spending money on things like plasma televisions and other luxury items using credit, families are struggling..I earn a low 6 figures, even I'm struggling..

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      • Ming:

        08 Aug 2007 9:51:37am

        I have not been in Australia long enough to see mortgage rate of 17%, 18%, or even 22% as I just heard yesterday. But I did have paid double digits interests rate.

        It is just a normal cycle of life and thus nothing to worry. The current rate of 8% is still low. You cannot get low house price and low interest rate at the same time. If you do, the country must be in recession.

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          • Gab:

            08 Aug 2007 10:39:21am

            Sure, intererest rates may be lower these days, but house prices have gone throught the roof!!

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      • PaulyG:

        08 Aug 2007 10:34:38am

        Pete, perhaps the ppl have been spending their tax cuts? Howards throwing taxpayer funds around the country would not have had any effect would they? I mean, Howard is our leader, and the ppl have just been following his example!

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      • James A:

        08 Aug 2007 10:35:16am

        I think that is what John Howard is forgetting.

        When you have a family, even those of us who are earning what should be a considerable sum, two or three times the average wage are struggling.

        Especially when you have to have private schooling now, be constantly in training yourself to keep your skills up to date (which costs more money), have private health insurance, personal indemnity insurance (if you are a contractor) and an ever increasing cost of living such as mortgage repayments/rent, petrol, fruit and veg. Everything it seems costs us more except plasma tvs :)

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      • peter:

        08 Aug 2007 10:42:32am

        The subprime problems in the US are only the start. Whilst not directly related to the interest rate rise in Australia today, the signs are emerging that we are in for a rough ride ahead - no matter who is in government.
        No-one consumes like the US, yet fuel and food prices are factored into their inflation figure - go figure.
        Whilst the population is eating a bucket of KFC in front of their plasma screen tv we can only wonder at where the nations wealth has gone.
        The imbalance has to be addressed and this interest rate rise may start to flush out the poor consumer investment choices we are making.

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          • Tom:

            08 Aug 2007 11:59:37am

            While people should take responsibility for their own actions, the government has a responsibility to manage the economy. Peter and John just let credit card and other debt just keep going up and up. In fact, they encouraged this reckless debt-fuelled spending. it gets worse.

            Johny has been spending and spending like there is no tomorrow, even more in this election where it is clear he will lose.

            Their actions in allowing 300,000 migrants come in each and every year while not doing a single thing to help build the houses, schools, hospitals etc for this huge inflow of migrants has led directly to house prices going up and house affordability going down and down. Oh they have done two things, hidden the immigration numbers and blamed the states for borrowing to build the infrastructure the immigration inflow has made necessary :)

            The Federal Government share of taxation as a % of GDP has gone up, the States share has gone down. This talk of rivers of cash to the States from the GST is just excrement from a male bovine animal!

            Of course, blaming the States is the only tactic Johny knows. Good economic management? Bah! Just look at Johny's record as Treasurer under Fraser. History is just replaying itself, Howard is a lousy economic manager!

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