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Reserve Bank governor Glenn Stevens has signalled interest rates are on their way back up with mortgage rates likely to edge up between half and a full percentage point.

Giving evidence to the House of Representatives economics committee in Canberra, Mr Stevens said the RBA’s focus continued to be on what mortgage rates were offered by commercial banks rather than on the Reserve’s official cash rate.

He said given the commercial banks had lifted rates over and above what the RBA had done, there was still about a half and a full percentage point to go before mortgage rates were back to what the Reserve would consider close to their long term average.

“There’s a little distance to go yet before I think you could characterise the setting of interest rates as normal or average,” he said.

The RBA surprised markets by leaving official rates on hold at its February meeting.

Mr Stevens said on top of the Reserve’s own lift in official rates, the commercial banks actions had effectively delivered three and a half interest rate rises to mortgages cases, and in the case of Westpac customers, four rate hikes.

He said one of the advantages of lifting rates as the RBA did in the last three months of 2009 was that it could hold rates in February and get a clearer picture of how the economy was travelling.

“You get that luxury when you can wait a little a bit further down the line,” he said.

Mr Stevens said Australia had performed much better than even the RBA had expected out of the global recession.

But he warned that meant the economy was now heading into an upswing stronger than otherwise would have been the case.

“With the economy having had only a mild downturn with begin the upswing with less spare capacity than would typically be the case after a recession,” he said.

“There’s less scope for robust demand growth without inflation starting to rise again down the track.

“Monetary policy must be careful not to overstay a very expansionary setting.”

Mr Stevens said the resources sector in particular was looking to grow quickly, with the terms of trade likely to head back to the record highs seen in 2008 this year.

He also highlighted the strength of Australia’s sovereign debt position, hosing down fears the country was carrying too much debt.

“Australia’s position is by any measure very strong indeed,” he said.

The governor also played down fears raised by Opposition finance spokesman Barnaby Joyce that Australia could default on its debts.

Mr Stevens said Australia had never defaulted before and there were no signs it would now.

“I very much doubt there ever will be,” he said. 

“Monetary policy must be careful not to overstay a very expansionary setting.”

Mr Stevens said the resources sector in particular was looking to grow quickly, with the terms of trade likely to head back to the record highs seen in 2008 this year.

He also highlighted the strength of Australia’s sovereign debt position, hosing down fears the country was carrying too much debt.

“Australia’s position is by any measure very strong indeed,” he said.

The governor also played down fears raised by Opposition finance spokesman Barnaby Joyce that Australia could default on its debts.

Mr Stevens said Australia had never defaulted before and there were no signs it would now.

“I very much doubt there ever will be,” he said.

Source www.thewest.com.au

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AUSSIE Home Loans has recorded a strong rise in the number of borrowers looking to refinance their mortgages, as home owners try to take advantage of record low interest rates.

The non-bank lender said refinancing accounted for 38.5 per cent of home loans written in June, up from 30.2 per cent in March.

“There have been plenty of home owners who have been complacent about their mortgages,” Aussie founder and executive chairman John Symond said.

“But our figures show that more and more of them are taking advantage of record interest rate lows and are actively seeking out the best deal.”

However, the number of first home buyers settling home loans dropped to 21.3 per cent of total loans written in June, from 32 per cent in March.

“The steam has abated in the first home buyer market as many of them realise that the properties available are probably already at full price,” Mr Symonds said.

“They are re-assessing the market.”

Aussie is one of Australia’s largest non-bank providers of financial services and has a loan book of more than $30 billion.

Source  :  www.news.com.au

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