Canada's Housing Bubble

May 04, 2010 Chris Zappone canberratimes.com.au

The Reserve Bank has again slugged the nation's borrowers, raising its key interest rate today for the third month running as it moves to keep inflation in check.

The central bank lifted its cash rate by a quarter of a percentage point to 4.5 per cent, its highest level since the end of 2008. The move was tipped by a majority of economists after surges in consumer price inflation and house prices in the March quarter.

For mortgage holders on variable lending rates, today's 25-basis-point increase will add about $46 to the average monthly payment for a typical 25-year, $300,000 home loan, if it is passed on in full by the commercial banks.

Today's interest rate rise marks the sixth increase since October, when the RBA shifted its monetary stance as the economy began to recover from the global slowdown.

The string of rate hikes - broken only by the summer break in January and February's pause - is aimed discouraging excessive borrowing as economic growth returns to more normal levels.

The Australian dollar fluctuated around the time of the RBA news, dipping to 92.2 US cents before bouncing back to 92.4 US cents.

Before today's rates verdict, investors were pricing in at least four interest rate increases over the next 12 months, which would bring the RBA's cash rate - the starting point for banks when they calculate standard variable and other lending rates - to 5.25 per cent.

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