The Reserve Bank of Australia has lifted interest rates for the ninth meeting in a row, taking the cash rate to 3.35%. The hike of 25 basis points was broadly anticipated by economists but will still be a shock for many households struggling with cost-of-living pressure and surging inflation.
For an Australian with a $500,000 mortgage, the total increase in monthly repayments since April 2022 would be just under $1000 per month or roughly $12,000 per year.
The RBA said in a statement that the decision to keep lifting rates was due, in part, to the recent inflation figures which saw the annual CPI rise to 7.8%—the highest since 1990—and their desire to reduce inflation to the 2-3% target band.
“In underlying terms, inflation was 6.9%, which was higher than expected,” RBA governor, Philip Lowe, said. “Global factors explain much of this high inflation, but strong domestic demand is adding to the inflationary pressures in a number of areas of the economy.”
Lowe also “expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary”.
He added: “In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”
Economists from the big four banks—Westpac, the Commonwealth Bank, NAB and ANZ—all forecast the 25 basis point rise.
However, many remain concerned that by the time the impact of the rate rises flow through to the economy, the RBA will have lifted too hard and for too long and mortgage holders will be facing considerable financial stress.
It’s a risk that Lowe acknowledged in his Board notes.
“The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments,” he said.
“There is uncertainty around the timing and extent of the expected slowdown in household spending.”
Moments after the RBA announcement, Treasurer Jim Chalmers, headed off any criticism of the ninth consecutive rise by restating the Government’s independence from the Board.
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