Reserve Bank of Australia raises interest rates

By Emma Thelwell, ninemsn Money

In the only dead certainty on Melbourne Cup Day, the Reserve Bank of Australia has raised interest rates by 0.25 percent amid signs that the economy is back on track.

The RBA's second rate hike within four weeks has now pushed interest rates up to 3.5 percent, after wallowing at a 49-year ‘emergency low’ for 19 months.

Australia is the only country apart from Israel and Norway to have raised rates this year, with RBA governor Glenn Stevens noting the brighter outlook for the job market and for economic growth.

"With the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker", he said.

"The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead", Mr Stevens added.

However, the move may come as a blow to homeowners who will see around $45 added to their average monthly mortgage repayments – as average variable rates climb to 6.3 percent.

Calculate your post-rate hike repayments

Despite being well below last year's peak average variable of 9.6 percent, the rate hike may dampen the runaway property markets in Australia's mortgage belts, according to experts.

Tim Lawless of RP Data said first home buyer demand is already winding back and will be hit hardest by the RBA's move.

"First home buyers and low income households will feel the rise the most, whereas less price sensitive mortgage holders and prospective buyers will be less affected", he said.

Some punters however, stand to clean up. The rate hike will lure investors back to the market, as the lack of competition tempers runaway house prices, Mr Lawless said.

All eyes will now turn to the banks, which may look to raise home loan rates in accordance with the RBA's move.

ANZ was the first of the Big Four to raise its variable rate by 0.25 percent today, just minutes after the RBA's announcement. Commonwealth Bank was the second to ramp up its variable rate, also by 0.25 percent.

Last month, the RBA raised rates for the first time in 19 months – prompting rate rises from all of the Big Four banks.