The Reserve Bank is expected to raise interest rates again today, in a massive rise that will cost hundreds more Australians a month.
The Reserve Bank is expected to raise interest rates again today, in another massive rise that will add hundreds of dollars to monthly mortgage payments for the average borrower.
Most economists expect the RBA to announce another 50 basis points increase at its July meeting this afternoon, which would bring the official cash rate target to 1.35 percent.
The third consecutive rise would come after another clash of 50 basis points in June, the largest increase since February 2002, and 25 basis points in May.
The May rise was the first since 2010, as the central bank raised the cash rate from its record emergency level of 0.1% to combat rising inflation.
For a typical homeowner with a $ 500,000 mortgage and 25 years left, today’s increase will increase their monthly payments by $ 137, according to RateCity.
Its total increase so far from the May, June and July rate hikes would be $ 333 a month.
For a borrower with a $ 1 million mortgage, today’s decision will add $ 273 to their monthly repayments, which will increase their total increase to $ 665 a month since April.
“Australians are potentially looking at the barrel of RBA’s steepest rises since 1994,” said RateCity research director Sally Tindall.
“Variable-rate borrowers should prepare for another 0.50 percentage point rise this month and potentially another double-digit rise in August. This would be a bold move by the Reserve Bank, but not at odds with the actions other central banks are taking to curb inflation. “
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Treasurer Jim Chalmers said the expected rate hike would only put family budgets under more strain.
“The general expectation is that interest rates will rise again today,” Dr. Chalmers told ABC News.
“This means that an even greater proportion of people’s family budgets will be consumed with the repayment of the mortgage at the same time that they have had to find space for the essentials of life, whether fruits and vegetables and groceries. , whether they are gasoline. prices.”
RBA Governor Philip Lowe previously said a 75 basis point increase “was not on the table” at the time, but they were considering “gradual steps” of 25 or 50 basis points.
Dr. Lowe’s comments seemed to pour cold water at the suggestions that the official cash rate would reach 4% by 2022, as to do so, the RBA would have to announce at least a 0.75 percentage point hike.
But with consumer prices rising 5.1 percent in the 12 months to the March quarter, he acknowledged that the RBA only had a “narrow path” to curbing rampant inflation without causing, in turn, an economic recession.
“There is a way to reduce inflation without the economy getting too much pain, but it is a narrow path,” Dr Lowe said at a UBS roundtable in Zurich.
Dr. Lowe told the U.S. Chamber of Commerce in Australia last month that the RBA had a plan and was being guided by relevant information and data.
“Higher interest rates globally will help create a more sustainable balance between the demand for goods and services and the ability of our economies to meet that demand,” he said.
“As we chart the path back to 2% to 3% inflation, Australians should be prepared for further interest rate hikes. We decided to make a larger adjustment of 50 basis points based on the additional information that suggests a further upward revision of an already high inflation forecast “.
He added: “I want to emphasize, however, that we are not on a pre-established path. The speed with which we raise interest rates and how far we need to go will be guided by incoming data and the council’s assessment of the inflation outlook and the labor market “.
Former RBA board member John Edwards has previously predicted that the inflation rate will rise to 7% by the end of the year.
“I think it will be a few years before inflation is back in the 2-3 per cent range,” he said.
“Over the next two years, it’s going to go down gradually. That’s why it’s important that we chart that path there and people have confidence that we will.”
It comes after two of Australia’s four largest banks raised their fixed-rate mortgage rates last week in anticipation of rising interest rates.
The Commonwealth Bank of Australia raised its rates by 1.4% last Thursday, while NAB raised its rates to 1.1% the next day.
Tindall said the cash rate was expected to increase by 2.5 percentage points in less than a year, adding $ 685 to monthly repayments for a borrower with a $ 500,000 loan.
“Governor Lowe could have poured cold water on suggestions that the cash rate could reach 4 percent by Christmas, but the RBA is likely to rip the bandage off quickly,” he said.
“Borrowers should sit down and find out what a 2.5 percentage point increase in their monthly payments would entail. If that figure doesn’t look right to them, now is the time to take action. Refinance at a lower rate it can help inject continuous relief into the monthly budget and keep people afloat in what will likely be a tricky time for some families who feel the heat. ”
In an interview with ABC’s 730 Last month, Dr. Lowe defended his past statements that rates would not rise until 2024, saying “the economy did not evolve as we expected.”
“What would you say to people who are looking at and feeling confused because they think,‘ Well, I made loan decisions based on what was said last October and now it’s changed, so I feel stressed, do I care where you’re going? ‘ asked host Leigh Sales.
“I understand that people will make loan decisions based on our communication, and people took out loans that they would not otherwise have taken out,” Dr. Lowe replied.
“I also point out the fact that the economy has gone very well. The unemployment rate is at least 50 years old, a higher proportion of the population has a job than ever before, households have accumulated very large financial cushions. Over the past two years, people have set aside an additional $ 250 billion – it’s a lot of money, and the savings rate is still high, and the number of people who have been behind on their mortgages is actually declining, not increases.
frank.chung@news.com.au
– with NCA NewsWire
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