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Rate hike continues despite protests

DESPITE opposition from business and government quarters the Reserve Bank of Australia has ignored pleas and increased interest rates.

While business groups recognised inflationary pressures and the worst trade deficit on record needed to be addressed, they felt the Reserve Bank was too hasty in its decision.

Property is especially susceptible to changes in interest rates.

Both the Real Estate Institute and Master Builders Australia said the increase was too early because the housing market was expecting a natural slowdown when the pre-GST frenzy passed.

Chamber of Commerce and Industry chief executive Lyndon Rowe said the view that economic activity would continue strongly was not shared by all economic observers, including the CCI.

“In fact, parts of the economy are currently quite fragile and growth shows signs of easing off in coming months,” he said.

Before the Reserve Bank’s announcement, Mr Paterson said there was less pressure on prices today than there was a year ago and so any increase in rates was totally unjustifiable.

He said new wage figures showed that wage rates had increased just 0.6 per cent for the quarter and 2.6 per cent for the year. He said the figures confirmed that inflationary pressures were not caused by wage increases.

Westpac general manager economics Bill Evans said that even with a 1.5 per cent increase in household interest rates, household debt servicing ratios would be back to 1995 levels following the 2.75 per cent market rate hike in 1994.

“This is because household debt levels are much higher in 1999 and because banks absorbed 1 per cent of the rate rise in 1994, eventually only increasing mortgage rates by 1.75 per cent,” Mr Evans said.

Debt to income ratios have reached 100 per cent compared to 75 per cent in 1995.

Mr Evans said a decision on future increases could be made when the board meets again on 7 December with an increase likely in January.

The Reserve Bank has committed itself not to disturb commercial banking systems in December and before the new millennium.

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