Congratulations on your rate rise

By Andrew Pegler 06/11/2009

Let me start by offering my hearty congratulations to the mortgage holders of Australia on the “good news” that interest rates have gone up a notch. What?!, you say. Is he mad?, you say. While my sanity has been questioned before I ask that this time you show a little faith and read on.

Back in May the Budget papers told a bleak, gloomy tale, heavy with the dire predictions of an impending Armageddon. Basically we were going to get smashed and Kev and Wayne had done all they could. Well that was then and this is now and Australia is the only rich nation to have avoided recession.

And it only gets better.

Revised predictions in the 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO to the pointy heads) read like news from a parallel universe. Our debt and deficits will be way smaller thanks to improved economic conditions that are expected to boost government coffers by $5 billion. In addition, our GDP has been magically revised from May’s forecast of a contraction of 0.5 per cent to growth of 1.5 per cent, which will magically transform into 2.75 per cent next year. With all this magic it’s no surprise the economy is now forecast to hit full capacity in 2014-15, two years earlier than expected. Abracadabra Wayne.

Then there are those home prices that are best described as going, going, gone. They hit new highs in the September quarter thanks to the ongoing housing shortage, Australia’s growing population, our miraculous economy and the final shake of the First Home Buyers Grant money tree. The inflation genie meanwhile seems happy in its bottle being tempted to stay there by an irresistible mix of low oil prices and a flood of cheaper imports thanks to the high AUD.

And just when it couldn’t get better, unemployment is shrinking. September saw 40,600 new jobs come on line, dropping the rate from 5.8 to 5.7 per cent. Unemployment is now expected to peak at 6.75 per cent this financial year, rather 8.5 per cent predicted in May. That means 250,000 fewer people will lose their jobs and you could be one of them!

With such stellar news the RBA hike was inevitable and I argue a welcome alternative to the carnage of the US, UK et al where there is monetary policy is not even an option because interests rates are so low and there is little activity to hold back anyway. And that’s my point. We should all be very pleased with ourselves for being so lucky to live in county that’s doing so well we need to raise rates. So congrats we, he, she, they and you. Oh and stay tuned because there’ll be more “good news” over the next few months.

And in other news… the US Federal Reserve has decided to keep interest rates at close to zero. It hopes low rates will keep the dollar weak and thus reduce the US trade deficit, increase export competitiveness, and hopefully put a dent in that 10% unemployment figure. In its accompanying statement the Fed’s reiterated its intention to keep rates “exceptionally low” for an “extended period”.

As always I welcome your feedback and any ideas for subjects I can tackle. So go on, let us know what’s on your mind – log in and post your comments below.