RBA hands down shock interest rate hike in fresh assault on inflation
The Reserve Bank of Australia (RBA) has handed down another interest rate hike in a fresh rally to bring down a stubbornly high rate of inflation.
The central bank today decided to lift the official cash rate target by 25 basis points from 3.6 per cent to 3.85 per cent.
It is the 11th interest rate hike since April 2022, when interest rates were at the record-low level of 0.1 per cent. The nation’s cash rate is now the highest it has been since April 2012.
Today’s hike adds another $96 to the average monthly repayment on a $600,000 loan.
Over the life of the loan, that represents a near-$35,000 increase.
Since the start of May 2022 – when interest rates were just 0.1 per cent – monthly repayments have increased by $1351.
In his monetary statement, RBA Governor Philip Lowe said the cost of living in Australia was “still too high”.
“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” he said.
“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.”
Lowe said it would take “a couple of years” for inflation to hit the RBA’s target range of 2 to 3 per cent.
Currently, the annual rate of inflation in Australia is 7 per cent.
“The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook,” he said.
“While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range; inflation is expected to be 4½ per cent in 2023 and 3 per cent in mid-2025.”
Treasurer Jim Chalmers said today’s decision will come as a cruel blow to thousands of Australian households.
“This is a really difficult position for a lot of Australians who are already under the pump,” he said.
“This is a reminder of the difficult economic conditions in which we frame the Budget.”
Chalmers said it was an “inevitable consequence” that the economy “will slow substantially”, but stopped short of predicting a recession when asked by journalists.
“I think the rate rise is a pretty stark, pretty brutal reminder of the difficult economic conditions,” he said.
Graham Cooke, head of consumer research at Finder, said he believes we are at the peak of the RBA’s tightening cycle.
“Australians with an average loan size of $586k will be forking out around $14,000 more per year compared to what they were paying this time last year.
“The market consensus is that we are now at the peak of a frenzied, steep climb.
“The question yet to be answered is how well Aussie homeowners will be able to breathe in the thin air.”
Compare the Market’s general manager of money, Stephen Zeller, said the RBA’s decision to raise the cash rate for the eleventh time in 12 months was a “necessary evil”.
“But these rate rises are just the tip of the iceberg as homeowners are being hit with even higher costs with the cost of groceries, fuel and energy all soaring,” Zeller said.
“With the home loan interest rate grenade set to blow for many borrowers this year, many Aussies will be looking to refinance.
“If you’re on a fixed rate due to expire, you should be looking for the most competitive rate available and planning to make the switch or negotiating a lower rate with your current lender at least a month beforehand.”
RateCity.com.au research director Sally Tindall said the RBA is “hammering” home a message to Australians that inflation must be brought under control.
“By reverting back to a rate hike, the RBA is hammering home the message it is prepared to do what it takes to rein in inflation,” she said.
“After a month’s reprieve borrowers were still catching up to the rate hikes rather than catching their breath. To have another one piled on top will feel like another kick in the guts.
“Someone with a $500,000 debt at the start of the hikes, will now need to find more than $1,000 in spare change to stop their repayments from falling into the red.
“Some families may find this is the rate hike where they come up short.”
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