Rate rise shows economy stronger: Swan

(AAP) - Homeowners could face even more pain next month with some economists pencilling in yet another interest rate rise on top of Tuesday's increase by the Reserve Bank of Australia (RBA).

Treasurer Wayne Swan said rising rates were a consequence of a strengthening
economy, but the federal opposition said it was a further sign that the government
should be winding back on its "reckless" stimulus spending.
As expected by a majority of economists, the central bank raised its cash rate by 25
basis points to 4.25 per cent at its monthly board meeting on Tuesday, its second
consecutive month increase, and fifth in seven months.
"The board judges that with growth likely to be around trend and inflation close to
target over the coming year, it is appropriate for interest rates to be closer to
average," RBA governor Glenn Stevens said in a statement.
"Today's decision is a further step in that process."
The rate increase would add about $48 per month to repayments on an average $300,000
mortgage, assuming retail banks match the move.
The Commonwealth Bank of Australia - the nation's largest home lender - was the
first to lift its standard variable mortgage rate, and it was in line with the
official move.
The other major banks said they were reviewing their rates, although National
Australia Bank said on Monday it would not lift its rates by a greater margin than
the RBA.
Mr Swan said there was no justification for the retail banks to raise their rates
beyond the RBA's increase.
"If any bank did that, that would be arrogant in the extreme," Mr Swan told
reporters in Canberra.
He said rising interest rates were the "reality of a strengthening economy".
"I know that is cold comfort for a lot of families and a lot of people in
businesses," he said.
But rates were still lower than they were before the global recession, and someone
on an average mortgage was still paying $500 less per month or $6000 less per year,
he said.
On the flipside, new opposition finance spokesman Andrew Robb said homeowners were
paying $3500 or more extra a year on their mortgage than they were a year ago.
"This massive increase in repayments by the average mortgage holder is a direct
result of the Rudd government's reckless spending and the waste that's occurring in
much of that reckless spending," Mr Robb told reporters in Canberra.
"The Rudd government is working against the Reserve Bank. The government has its
foot on the accelerator, and the Reserve Bank is forced to each month put its foot
harder on the brake with higher interest rates."
He again pressed for a judicial inquiry into the government's school halls and home
insulation programs.
More worrying for homeowners, some economists say there is now a risk the RBA could
put the cash rate up for a third straight month in May.
"The RBA's willingness to hike today, despite the recent softer data, suggests it
remains focused on its positive medium-term outlook," UBS Australia chief economist
Scott Haslem said.
He said given upside risks to that outlook, it would appear the central bank wants
to move as quickly as possible to re-establish, at the very least, more historically
normal borrowing rates.