Inflation rise is bad news for home loan rates

Wednesday 27 January 2010

Article by Mozo

New figures have revealed that inflation rose at the end of last year, making a fourth consecutive interest rate hike next month more likely.

Research by the Australian Bureau of Statistics showed that headline inflation rose 0.5 per cent in the three months up to December, the Herald Sun reported.

This amounts to an annual rate of 2.1 per cent, which is slightly higher than the market forecast of two per cent.

Rising inflation increases the likelihood that the Reserve Bank will raise interest rates when it meets in February. Economic forecasts have predicted that official rates will rise by one per cent over the course of the year.

Yesterday Chris Richardson, a director of Canberra’s Access Economics, told the Courier-Mail that the major banks will seek to attract mortgage customers by absorbing a percentage of the Reserve Bank rate increase.

This could encourage Aussies to compare home loans as the banks look to
absorb about 0.3 percentage points of the rise, Mr Richardson said.

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