Reserve Bank hikes cash rate yet again

RBA governor Philip Lowe said the board had taken the decision to bring the official cash rate to 3.6%, marking the 10^th consecutive rate hike and bringing the figure to its highest level since mid-2012.

In a statement, Mr Lowe said inflation remains too high and the cost of not taking aggressive action would be significant.

“The board’s priority is to return inflation to target,” he said.

“High inflation makes life difficult for people and damages the functioning of the economy. And 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.”

PropTrack senior economist Eleanor Creagh believes another increase is likely, but mortgage holders could see some relief sooner rather than later.

“Interest rates have increased substantially in a short period but we’re probably going to see another rise next month,” Ms Creagh said.

After April, Ms Creagh believes the RBA will pause and wait to see the impacts of its tightening cycle flow through.

“There is some evidence that a wage-price spiral can be avoided and an indication that the December quarter was indeed the peak in inflation,” Ms Creagh said.

How much more borrowers are paying

For those with $500,000 outstanding on their home loan, today’s hike could add an additional $80 to their monthly mortgage repayments.

Mortgage holders with a balance of $750,000 will pay an extra $121 a month after today’s increase, while those with a $1 million loan balance will cough up an extra $161 per month.

Full impact of rate rises

Note: In these calculations, the borrower is assumed to be an owner-occupier paying principal and interest with 30 years remaining on their loan. It assumes an initial average variable interest rate of 2.86%, according to April RBA figures. It assumes each rate hike is passed on in full. The calculation does not factor in loan fees and charges, or any principal paid down over time.

Mortgage Choice chief executive Anthony Waldron urged borrowers to check in with a broker to make sure they’re not paying more than they should be.

“Most lenders on our panel are offering cash back deals for borrowers looking to refinance, but it’s important you speak to your broker before switching to understand if refinancing is the right move for you,” Mr Waldron said.

What the RBA governor said

In a statement following today’s decision, Mr Lowe hinted at the likelihood of further “tightening” measures.

“The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,” he said.

“In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and 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.”