Economic recovery causes rate increase in Australia

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The Reserve Bank of Australia raised interest rates by 25 basis points yesterday for the first time since March of last year, citing lower unemployment and housing growth as reasons for the hike.

The cash rate is now at 3.25 per cent and is expected to push up rates on variable mortgages immediately. 

Ian Simpson, a mortgage broker and former interest rate specialist at Macquarie Bank, told brokernews.com.au (mortgagebrokernews.ca's sister publication) that the RBA had to raise rates today.

"[Reserve Bank governor] Glenn Stevens doesn't want to have his reputation tarnished by the same thing that happened to Alan Greenspan in the US," Simpson said. "If he didn't raise rates, he could be stuck with a property price bubble."

Ann Folbigg, a broker Sydney, said she wasn't surprised at the rate hike.

"The governor has been giving plenty away, that rate rises were coming sooner rather than later," she said. "People were expecting it to come at some point in the next two to three months. Our rates are still at historic lows and everything is still looking good from an economic recovery point of view."

The Real Estate Institute of Australia urged "caution" regarding further rate rises, with the institute's president, David Airey, saying the despite economic recovery in the country, the bank should be wary not to slow economic growth by increasing interest rates prematurely.

A report released yesterday by TD economics says the Bank of Canada could "very well follow suit [with the RBA] if Canadian real estate continues to heat up."

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