Australia's Financial Services Minister has begun preparing the way for higher interest rates declaring that that the present low rates "can't stay that way forever" and expressing sympathy for banks such as Westpac that have already begun pushing up fixed-term mortgage rates.
Ahead of an announcement from the Reserve Bank this afternoon expected to signal that its next move is up, Mr Bowen said he understood Westpac's decision to push up its fixed-term rates by 0.10 points because those rates were "largely set by expectations" and there were "signs of increased interest rates and cost of capital around the world."
"As the world edges towards, slowly edges toward, a recovery then you are going to see a rising cost of capital, rising interest rates," he declared in a later television interview. "Fixed term rates tend to reflect that."
His remarks stand in contrast to those of Treasurer Wayne Swan who in June accused the Commonwealth Bank of "getting in the way of rate relief needed to stimulate our economy and to support jobs" when it lifted its variable rates by the same amount in order to match the competition...
"I think Australians rightly will be furious with the Commonwealth Bank for hindering the efforts of the Commonwealth Government, the Reserve Bank and the community to support our economy during this global recession," Mr Swan said at the time.
But in a signal that the government itself now believes that support will soon no longer be needed, Mr Bowen encouraged Australians to "build into their calculations the possibility of interest rate rises over the medium term, and particularly over the longer-term because interest rates are at historically record lows, and they can't stay that way forever".
Financial markets expect the Reserve Bank to push up its cash rate from the present five-decade low of 3 per cent to 4.5 or 5 per cent before the end of next year, enough to lift standard variable mortgage rates to more than 7 per cent and to add $300 to the monthly cost of repaying a $300,000 mortgage.
Asked whether the Australians who have rushed to the mortgage market to take advantage of the First Home Owners Boost could afford such a jump, the Financial Services Minister replied he was confident that most had the right decision.
"At the end of the day you have to trust people to make those decisions, and I think the vast majority of people have been responsible, will be responsible, and have borne in mind the fact that these very low interest rates can't go on for ever," he said.
This morning's Sydney meeting of the Reserve Bank board will be told the monthly ANZ job advertisement count shows newspaper ads stabilising after very sharp falls earlier in the year.
"We are increasingly optimistic that employment conditions will not be as severe as we envisaged six months ago," said ANZ economist Warren Hogan releasing the news.
Also released Monday the Australian Industry Group's Performance of Manufacturing Index showed manufacturing employers more optimistic than at any time in the last 10 months with new orders leveling out after months of falling.
Published in today's SMH and Age