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The Reserve Bank of Australia has hiked interest rates for a seventh consecutive month, warning that it now expects inflation to peak at a far higher-than-expected 8 per cent by the end of 2022.
This afternoon the central bank lifted interest rates by 25 basis points or 0.25 per cent, taking the cash rate to 2.85 per cent.
It is the second time in 12 years the RBA has lifted rates on Melbourne Cup day, following a move of similar size in 2010 just before French raider Americain claimed the race.
Then the cash rate was 4.75 per cent.
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Today's hike means the average Australian with a $500,000 mortgage would be paying around $74 more a month, after having seen their monthly repayments rise by a total of $760 since interest rates began lifting in May 2022.
Borrowers with larger loans – of around $1 million – are now dealing with a seven-month increase of more than $1500 extra on their monthly repayments.
The current level of 2.85 per cent is now the highest cash rate Australia has seen since April 2013.
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In his monetary statement, RBA Governor Philip Lowe issued a warning that it now expects inflation to peak at 8 per cent by the end of 2022 – higher than the Federal Budget forecast of 7.75 per cent.
Currently inflation in Australia, measured via the Consumer Price Index, is sitting at an annual level of 7.3 per cent.
"As is the case in most countries, inflation in Australia is too high. Over the year to September, the CPI inflation rate was 7.3 per cent, the highest it has been in more than three decades," Lowe said in a statement.
"A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year.
"Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand."
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Lowe also signalled that it was also likely that rates would be hiked further.
"The Board has increased interest rates materially since May. This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target," he said.
"The Board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board's assessment of the outlook for inflation and the labour market.
"The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
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The hard news for households already under mortgage stress is that the worst may not be over.
Economists at both Westpac and ANZ are now forecasting that the cash rate could increase to 3.85 per cent before levelling out.
According to RateCity.com.au, if that forecast is realised the same borrower with a $500,000 loan should see monthly repayments rise by almost $1100 in just 12 months.
"Australians are already facing the highest annual rise in the cost of goods since 1990. Throw in skyrocketing mortgage costs and it's a double whammy for families struggling to make ends meet," RateCity.com.au research director Sally Tindall said.
"While some families are doing it tough, many households still continue to have significant savings buffers at the ready for a rainy day, with the latest APRA data recording yet another increase in household deposits to a record $1.32 trillion.
"Households should remember that while we're six rate hikes in, many of them have only started paying the third or fourth hike."
Graham Cooke, head of consumer research at Finder, said the latest hike will be a "bitter pill to swallow" for many borrowers.
"Finder research is showing a significant increase in the number of households indicating housing, groceries and petrol as causes of financial stress," he said.
"According to the experts, the factors causing these price increases are likely to hang around for many months, meaning no relief on the horizon for households."
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
Source: 9News
