Australian homeowners have been dealt another brutal blow with the Reserve Bank of Australia confirming its 10th consecutive rise in an attempt to curb inflation.
The RBA has announced yet another increase in interest rates today, increasing the official cash rate 25 basis points to 3.6%. The increase represents the highest rates for Australians in over a decade and the tenth consecutive increase by the RBA.
The move further squeezes the pockets of Australian homeowners, who are already experiencing the fallout of inflation and job uncertainty. Last month the RBA board increased the cash rate target by 25 basis points to 3.35%. It also increased the interest rate on exchange settlement balances by 25 basis points to 3.25%.
In real terms, the increase means that someone with a $500,000 mortgage is paying an additional $12,000 a year in home loan repayments compared to their repayments in May 2022.
RBA Governor Philip Lowe and the board have come under intense scrutiny for the steady increases in the cash rate, however, they say it is imperative that the country takes control of inflationary and wage pressures.
The move is a contradiction to RBA commentary in 2021 that suggested that no rate rises were likely until 2024. The first indication that the RBA had changed its strategic direction was in May 2022 when it increased the cash rate from a record-low of 0.1% to 0.35%.
RBA Governor, Philip Lowe, said today that the monthly CPI Indicator suggests that inflation has peaked in Australia. Global inflation and economic pressures remain another matter entirely.
“Global inflation remains very high. In headline terms it is moderating, although services price inflation remains elevated in many economies,” Lowe says. “It will be some time before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.”
The RBA’s caution comes off the back of high global inflation, which it acknowledged is moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy. It suggests it will be “some time…before inflation is back to target rates”.
Lowe says that household balance sheets are also being affected by declining property prices.
“Another source of uncertainty is how the global economy responds to the large and rapid increase in interest rates around the world. These uncertainties mean that there are a range of potential scenarios for the Australian economy,” he says.
In the meantime, Lowe says the RBA’s priority is to return inflation to target levels. He cautions that “if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment”. The RBA is seeking to return inflation to the 2–3% target range while keeping the economy on an even keel, but “the path to achieving a soft landing remains a narrow one”, Lowe cautions.
Updates on the RBA’s announcement will be available here.
