The Reserve Bank has raised interest rates for the third month in a row with another massive rise that will cause more pain to borrowers.
The Reserve Bank has raised interest rates for the third month in a row with another massive rise that will add hundreds of dollars to monthly mortgage payments for the average borrower.
Following the July meeting this afternoon, the RBA announced another 50 basis point increase, in line with market expectations, which brought the official cash rate target to 1.35 per cent.
The third consecutive rise comes 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.
“Today’s rise in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help secure the Australian economy against the worst possible effects of the pandemic,” he said. RBA Governor Philip Lowe in his statement.
“The resilience of the economy and higher inflation make this extraordinary support no longer necessary. The Council hopes to take further steps in the process of normalizing monetary conditions in Australia over the coming months. The size and timing of future interest rate increases will be guided by incoming data and the Board’s assessment of the inflation outlook and the labor market. The Council is committed to doing what is necessary to ensure that inflation in Australia returns to the target over time. “
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. “
Finder head of consumer research Graham Cooke said it was “tough news” for many homeowners, with one in four already struggling to cope with monthly mortgage payments in June.
“There is still no light at the end of the tunnel, with our panel predicting at least two more rate increases,” he said.
“This will increase downward pressure on a rapidly deflated housing market.”
CoreLogic figures showed that national housing prices fell for the second consecutive month in June by 0.6 percent.
The research firm says the trajectory of the falls will largely depend on the path interest rates take.
“A maximum-to-minimum drop of more than 10% is becoming more widespread in different private sector forecasts,” said CoreLogic head of research Tim Lawless.
“A ten per cent drop in the market would bring national housing values to similar levels in July 2021. A 15 per cent drop would return the market to April 2021 levels. A 20 per cent drop in values of houses would bring the national index to January 2021 levels, and only marginally above where house values were at the end of 2017. ”
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Treasurer Jim Chalmers said earlier that 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.”
Dr. Lowe has previously said that a 75 basis point increase “was not on the table” at the time, but they were being considered “graduated steps” of 25 or 50 basis points.
His comments seemed to pour cold water on 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.
The RBA will publish its decision at 2.30pm AEST.
frank.chung@news.com.au
– with NCA NewsWire
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