BEN POTTER, RESEARCH ANALYST, IG MARKETS
"With government stimulus clearly past its peak and the RBA suggesting itself there were no present imbalances in the economy, we cannot fathom the decision, especially considering the global rhetoric from the recent G20 meeting that it's too early to begin withdrawing stimulus and normalising rates."
RORY ROBERTSON, INTEREST RATE STRATEGIST, MACQUARIE
"The RBA had widely advertised it was near to edging up rates from their extraordinary lows, and now it's done so. It will be a gradual move from an emergency rate of 3 per cent, to a still easy 4 per cent. "If everything goes well over time, then we could get back to a more normal 5 per cent in the next year or two. It'll be cautious, I think, because it's moved before unemployment has peaked and while full-time employment is falling. We're looking at small steps, depending on the economy."
ANNETTE BEACHER, SENIOR STRATEGIST AT TD SECURITIES, SINGAPORE
"It has come as a surprise to us as we were expecting them to move a bit later. Looking through the statement, I suspect the expansion in dwelling prices and housing credit may have seen them moving sooner rather than later."
WARREN HOGAN, HEAD AUSTRALIAN ECONOMICS, ANZ
"I think the reasons are they see the economy at trend and inflation on target next year. That tells you that their idea is that policy shouldn't be so far away from neutral. "We've got what looks like a gradual tightening process in train. That tells you that the cash rate is likely to be gradually increased, probably by another 25 basis points next month, and then another couple of times early next year.
"The key issue is whether they will take the cash rate all the way back to that 5-6 per cent level in the foreseeable future. There are still a lot of underlying risks and underlying weaknesses, the rising unemployment rate, credit growth is still quite soft. "Our view is that while we do expect the cash rate to get to 4 per cent, it's starting to happen a bit earlier than we thought. They will probably only get it up to 4-4.25, and they they will pause. You may not see the rate back to that 5-6 per cent level until well into 2011."
"It's just prudent to get the rate hike out there early rather than wait any longer and risk having to tighten more aggressively.
"We suspect this is the first of many, but they are going to go slowly. I think they're going to go a quarter of a point every couple of months or so. Even then, we are still very accomodative. We are not going to tight zone for a long time.
"They will probably wait till December to see how consumers in particular withstand this rate hike. There is no rush here."
"It was a bit of a shock. Now that they've done it, they will start slowly normalising rates. The whole tenor of the statement was more upbeat this time round, and so it will probably be followed by another 25 basis points next month. At this point, I think they will still move cautiously, at 25 basis points.
"It's hard to say how far they will go but at some point, rates should be at 4 percent next year."
- In a Reuters poll on Friday, 19 of 21 analysts had forecast a steady rate of 3.0 pct, with two looking for a hike to 3.25 pct.
- However, the odds narrowed sharply on Monday after two influential columnists wrote that a hike on Tuesday now looked likely given the surprising strength of the economy.
- Many thought the RBA would hold off until November at the earliest to assess more data, including the consumer price
report for the third quarter due later this month.
- But a run of upbeat data on household spending, employment and, especially, house prices suggest the RBA was becoming impatient with keeping rates at an "emergency" level of 3%.
- So successful has policy been that RBA Governor Glenn Stevens last week said the unusually low cash rate would have
to be raised in a timely manner to avoid over-stimulating parts of the economy.
- The hike makes Australia the first of the G20 to move and the second developed nation after Israel to start unwinding the extraordinary stimulus of the global credit crisis.