Mortgage rate rise unjustified - Housing Industry Association

3 December 2003

Today’s move by the Reserve Bank to raise official interest rates for the second time in two months is both unwelcome and unjustified.

Australia’s peak building industry body, the Housing Industry Association, said that to raise rates again before allowing the first rise to be properly absorbed into the economy is a dangerous practice.

HIA’s Chief Economist, Mr Simon Tennent said that the recent wave of strong economic data is deceiving in that it pre-dates November’s 0.25% rise.

"What the figures don’t show yet is that the first rise has had an immediate effect, in particular on auction clearance rates, display home traffic and deposits on new homes," Mr Tennent said.

"High levels of household debt have created an environment in which households are extremely sensitive to interest rate rises. It has therefore never been more important to allow rate rises to run their course before considering further adjustments to monetary policy," he added.

"Not to do so risks a repeat of what we saw in 2000 where a rapid series of interest rate rises put the economy on the brink of recession," Mr Tennent said.

"Monetary policy is a very blunt instrument and we call on the Reserve Bank to allow this second move to be absorbed into the economy before considering further rises."