Financial markets have an interest rate hike today a "live" possibility after official figures both showing both house prices and commodity prices climbing their fastest on record.
Just one day after Treasurer Wayne Swan declared the start of "commodity boom mark two" the official Reserve Bank index of export commodity prices recorded its biggest-ever monthly jump, climbing 17.6 per cent in April when measured in a basket of currencies.
The bank says the jump only "partially" reflects the new higher prices being negotiated for iron ore and coal with the latest deals pushing up the price of iron ore "around 100 per cent" and coking coal "55 to 100 per cent."
Separate housing from the Bureau of Statistics show prices continuing to surge in the first three months of this year even after the end of the First Home Owners Boost.
The Bureau's index has Sydney prices jumping 5 per cent between the December and March quarters, and climbing a record 21 per cent over the year. Melbourne prices climbed even faster, jumping 7 per cent and 28 per cent...
Over all capitals prices climbed 5 per cent and 20 per cent.
ABS 6416.0, March quarter
The privately compiled RP Data index, regarded as more reliable, climbed a lower 12 per cent in Sydney over the year and 19 per cent in Melbourne.
"The Reserve Bank places more weight on the RP Data index. But whatever the index this will concern it," said Macquarie Bank interest rate strategist Rory Robertson. "The economy is doing well, house prices, share prices and now commodity prices are trending up and yet rates are below average. It looks like they'll move."
BT economist Chris Caton agreed saying "even though the ABS measure is not the Bank’s favourite, a 20 per cent increase in house prices is very difficult to ignore."
"This may well be the log that broke the camel’s back. Until now, I had thought that the Bank would take a month off. It may no longer be able to afford that luxury."
Meeting in Melbourne where house prices are climbing the fastest, the Sydney-based Reserve Bank board will announce its decision at 2.30 pm. Financial markets have swung heavily behind a hike with trading putting the likelihood of a rate rise at 70 per cent, up from 55 per cent before the housing and commodity price figures.
The rate hike just before a federal budget would be unusual but not unprecedented. The Reserve Bank pushed up rates on the eve of budgets in May 2000 and May 2002.
The betting market have swung sharply behind a rate rise with 95 of bets placed at Sportsbet.com.au in the past week backing a hike.
"The market has completely turned on its head," said Sportsbet's Haydn Lane. "We're now offering just $1.35 for a $1 win on a hike. Two weeks ago it was $2.90. The activity is unprecedented."
Once regarded as of only moderate relevance to interest rate decisions, house prices became regarded as a key variable after Reserve Bank Governor Glenn Stevens used a March television interview to warn Australians he would not look kindly on continued price rises saying "if all we end up with is higher prices and not many more dwellings then it will be very disappointing, indeed quite disturbing."
A further rate hike of 0.25 per cent would add another $48 to the monthly cost of repaying a $300,000 mortgage bringing the total extra cost since October to $235 per month.
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