Latte Rates

The Reserve Bank Board has just increased rates from 4% to 4.25% - the 5th rise since October 2009. This means that a standard variable rate mortgage from BankSA from 9 April will carry a rate of 7.18% for existing and new residential loans. The Reserve Bank is concerned about a bubble in the housing market and the possibility of a breakout in inflation.

Treasurer Swan says interest rates are getting back to "normal" and Governor Stevens reckons they are trending towards "average" rates. If this is the a case, then a lot of homeowners would probably prefer "abnormal" or "below average" rates!

We noticed on Tuesday that a latte at our favorite city cafe increased by 20 cents a cup. Shouldn't it have gone down if interest rates have gone up to stifle inflation? Or do they need to set the interest rates even higher? Looking closely at Governor Stevens's press release, it is clear that he thinks interest rates are not yet "average" - perhaps this is a sign that there will be more rates increases in the coming months.