Borrowers to gain reprieve for now

Homeowners may escape another interest rate rise on Tuesday but all the signs are
that further mortgage pain will be on the cards next year.
The Reserve Bank of Australia (RBA) will hold its monthly board meeting on Tuesday
but no economist is predicting a follow-up rate increase in the cash rate after last
month's 25-basis-point rise resulted in a 40-basis-point jump on average in variable
mortgage rates among the major banks.
"The 'super-sizing' by the commercial banks all but eliminated the need to do much
more near term," JP Morgan chief economist Stephen Walters said.
Last week's data also showed tepid economic growth in the September quarter and an
unexpectedly weak result for October retail sales, giving the (RBA) more flexibility
on its next move.
The jump in mortgage rates, aside from the uproar from customers and politicians of
all stripes, has caused a change of behaviour among borrowers.
According to Mortgage Choice data, almost 11 per cent of all home loans approved in
November were fixed rate, compared with 7.7 per cent in October, as borrowers sought
certainty in their monthly repayments.
Such mortgages accounted for less than one per cent of approvals in January.
Another broker, Loan Market, has also faced a flood of inquiries from people wanting
to reduce their home loan by moving to a smaller house.
Treasurer Wayne Swan is expected to announce a suite of measures this week to
encourage more banking competition by promoting smaller banks, building societies
and credit unions.
Opposition finance spokesman Andrew Robb said something had to be done after the
government "botched" its guarantees during the global financial crisis that led to
the departure of so much competition.
"The government must take some very positive steps to try and turn that around," Mr
Robb told ABC Radio.
Whether such measures will be introduced in time for the next rate rise remains to
be seen but there are already signs that price pressures are beginning to mount.
The TD Securities-Melbourne Institute monthly inflation gauge showed prices grew by
a further 0.4 per cent in November, the largest monthly increase since May.
This lifted the annual rate to 3.9 per cent, well beyond the top end of the central
bank's two to three per cent inflation target band.
"With inflationary pressures already building, the next move remains up for interest
rates," TD Securities head of Asia-Pacific research Annette Beacher said.
Ms Beacher said that while another 25-basis-point increase to a five per cent cash
rate in the first three months of next year cannot be ruled out, given the central
bank now has room to manoeuvre, this timing could easily slip into April or May
without compromising its anti-inflation credentials.
National Australia Bank senior economist David de Garis also pointed out that higher
food prices are probably on the way as a result of the rains and flooding on the
eastern seaboard.
Other data released on Monday indicated strong demand for workers remains intact,
which will further keep the central bank on alert.
The ANZ's job advertisement series grew by 2.9 per cent in November, the strongest
rise since February.
"Not only did job advertising growth continue but actually accelerated in contrast
to some other domestic demand indicators," Mr de Garis said.
Official labour-force data for November will be released on Thursday.



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