Many predicted that interest rates would be on the move in October, although some had held their prediction back to November, and sure enough… interest rates rose today by 0.25% from 3% to 3.25%.  In a statement issued today, Reserve Bank Governor Glenn Stevens cited lower unemployment and solid housing credit growth as among the reasons for the increase. He said the “risk of serious economic contraction in Australia [had] now passed”.

Brokers around the country are expressing mixed feelings about the rate rise today, with some stating that the RBA had no choice given the rate at which house prices are increasing, while others slammed the RBA Governor claiming that he has now jeopardised a healthy housing market.

Personally, while low interest rates are great for borrowers, I have felt that rates have been almost excessively low for a time, although the housing market has essentially kept Australia from sliding into recession.  Such low rates create a demand for property, which pushes house prices up at alarming rates.  These price increases make it all-the-more difficult for new buyers to enter the market, and heighten the strain when interest rates do finally increase, given the much larger amounts of money being borrowed.

The job for the RBA is to find a healthy balance, however, in the last three to four years, we’ve consistently overshot the mark, with ridiculous rate increases late in 2007 and early 2008, and then the slashing of interest rates from September 2008.  Unfortunately, the RBA has missed the mark on all occasions in recent times, and while it has helped to save Australia from recession, along with the Government’s economic stimulus package, we could have been spared a lot of pain had we not simply jacked rates up recklessly in the first place.

Given we are slowly finding our feet, economically speaking, I can only hope that in the coming months and years the RBA will get their monetary policies right.