Reserve Bank raises interest rates by 0.25%

By James Wells

SYDNEY: Australia’s banks will pass on the Reserve Bank of Australia’s 0.25% increase in official interest rates to consumers, which is likely to further harm to local retailers after a poor April sales period, described by one supplier as "an absolute shocker".

In the first rate rise since March 2005, banks can now increase their standard variable rates on home loans from 7.3 per cent to above 7.5 per cent.

Although some banking analysts said that two thirds of consumers were ahead of their interest rate payments, several suppliers expect further retail strain after a poor trading month in April.

One supplier told current.com.au: “The month of April was an absolute shocker”.

Harvey Norman general manager – electrical, David Ackery, told current.com.au, “April was a bit challenging” and added that suppliers are looking for more forward forecasting to assist with their ordering.

Retravision CEO, Keith Perkin, said: “anecdotally, all states are saying it has been a very tough month.”

A statement issued by the Reserve Bank said the rate rise came about after inflation peaked in the top end of the bank’s two to three per cent target. Interest rates are now at their highest level since February 2001.

The rise has come as a surprise to a lot of economists.

A recent survey by AAP showed only four out of 13 economists had predicted an upward move.

Commsec chief equities economist, Craig James, was one of a majority of economists who had predicted the Reserve Bank would leave rates on hold at least this month.

"Few economists were tipping this. I don’t think it’s going to tip the economy over the edge," James told Sky News.

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