Rate hike still on the cards: RBA

Reserve Bank Governor Glenn Stevens has reiterated that further interest rate hikes may be on the horizon.

In a speech to a Brisbane luncheon for the Economic Society of Australia, Stevens said the RBA expects inflation to continue to rise, and that further tightening of monetary policy could be necessary. However, Stevens may have taken a rate rise in July off the table, commenting that new data will be available late that month to help the RBA assess the level of inflation.

"New information will, as always, be important in our monthly assessments of what monetary policy needs to do. As far as prices are concerned, we will get another comprehensive round of data in late July," he remarked.

Stevens also defended Australia's multi-speed economy, saying that while the RBA recognises certain segments of the economy face hardship, the resources boom means a better overall economic position. Stevens claimed this filtered through to the broader economy in ways that are not always apparent.

"The average consumer in an advanced economy is effectively experiencing a decline in purchasing power over food, energy, and raw material-intensive manufactures. Australian consumers face this to some extent as well. Were Australia not a producer of raw materials, we would be experiencing a good deal more of it. In such a world, there would be no resources sector build up. Our currency would be much lower. We would be paying much more for petrol at the pump, for our daily coffee and for a wide range of other consumer products. We would not be holidaying overseas in our current numbers," Stevens said.

(Source: By Adam Smith | 16/06/2011)

Investors dive back into market

Investors appear to be taking advantage of the softer market conditions, with mortgage sales rising 18.8 per cent in May.

According to the latest AFG Mortgage Index, total mortgage volume for May was $2.5 billion – just 1.7 per cent lower than the figure recorded for May last year.

Victoria and New South Wales saw the biggest month on month upswings in mortgage volumes, increasing by 27.2 per cent and 23.3 per cent respectively.

Both states also had the highest proportion of investment loans with 38.8 per cent of loans in Victoria and 37.9 per cent of those in New South Wales, processed for investors. May also saw a surprise increase of investment loans in Queensland, up to 36.5 per cent - its highest such figure for well over a year.

AFG general manager of sales and operations Mark Hewitt said while property investment has remained at consistent levels throughout the ups and downs of the property cycle, it strengthened significantly in May.

“It is certainly a buyer’s market right now, and investors looking at rising yields are probably better insulated from the impact of rising interest rates than other types of buyers,” he said.

Refinancing remained steady at 36.8 per cent despite higher levels of competition between lenders, and the abandoning of exit fees by many. It seems that many borrowers have adopted a long term view of their lender relationship, as encouraged by AFG.