RBA ‘virtually certain’ to raise rates next week
Australia’s highest inflation rate in 21 years means the Reserve Bank of Australia is a “virtual certainty” to raise the official cash rate by 0.5% on Tuesday, experts say.
Last week, the annual CPI hit 6.1% in the June quarter, with markets now tipping the RBA to raise the cash rate by 0.5% in August and September.
RateCity.com.au research director Sally Tindall said another hike would hurt borrowers.
“A cash rate hike of at least 0.5 percentage points now looks like a virtual certainty on Tuesday,” she said.
“Even if borrowers knew that rates would not stay at record lows indefinitely, few would have predicted such large increases so soon.
“If there is another double hike, the average borrower with a $500,0000 loan could be paying $472 more per month than in April.
“In addition to rising grocery and gasoline prices, this is going to hurt.”
If the RBA lifts the official cash rate by 0.5% next week and it is passed on in full by lenders, borrowers would have seen interest rates rise by 1.75 percentage points in four months.
ANZ now forecasts the cash rate could reach 3.35% by November, while Westpac forecasts the cash rate to hit that mark in February 2023.
If Westpac’s forecast comes true, a borrower with a loan balance of $500,000, before the hikes began, could see their monthly repayments increase by $908 by February of next year.
PropTrack director of economic research Cameron Kusher said that while inflation was at an all-time high, the most recent data could have been worse.
“The 6.1% year-on-year increase in the CPI is high, but not as high as many had expected,” he said.
“This is still the largest year-on-year increase in inflation since June 2001 after the introduction of the GST.”
Kusher said high inflation means interest rates are expected to rise further and house prices will continue to slow.
With more rate hikes expected by most economists, Ms Tindall said “more pain is on the way” for borrowers.
“The RBA has warned that it plans to raise rates steadily to try to contain inflation, with some economists now forecasting a cash rate of 3.35% within months,” she said.
Ms Tindall said Australia was not the only country with an inflation problem, with most countries facing high CPI readings.
“Central banks around the world are moving quickly to try to contain the inflationary beast, with big hikes in official rates,” she said.
“The US Federal Reserve, which is currently grappling with an even bigger inflation problem, is widely expected to raise official rates an additional 0.75 percentage points later on Wednesday, bringing the range to 2.25% – 2.50%.”
Ms Tindall said households were being forced to cut spending to cope with rising prices.
“Every couple of weeks, families are seeing their grocery bills go up, the car cost more to fill up, and the cost of their take-out coffee continues to hit record highs,” she said.
“With rising costs on all fronts, many families will need to start making significant savings.
“People should really start putting pen to paper to come up with a financial strategy for the next 12 months.
“For some households it will be a few pinches to their budget, but for others it will mean making some tough decisions.”