Two of Australia’s biggest banks have wasted no time in passing on the full 25 basis point rate hike announced by the Reserve Bank, which hinted that there was more mortgage pain to come.
The ANZ and NAB announcement their increases just hours later. Both are passing on the full .25 per cent from February 17.
NAB said it was not passing on a rate increase to savings customers at this stage, but the ANZ is giging ANZ Plus Save account holders a .25 per cent lift to 4 per cent.
The RBA lifted the cash rate for the ninth consecutive time on Tuesday, taking the official cash rate to 3.35 per cent.
Governor Philip Lowe acknowledged some households were beginning to feel a “painful squeeze” on their budgets and warned there are major clouds of uncertainty around the future of Australia’s economy.
In a statement, Dr Lowe warned there were a “range of potential scenarios” for the Australian economy, including how hard and when the full impact of the nine rate rises would hit families.
“The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments,” he said.
“There is uncertainty around the timing and extent of the expected slowdown in household spending. Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living.
“Household balance sheets are also being affected by the decline in housing 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.”
Economists warn for cash rates to hit 4.1 per cent
While the bulk of analysts and economists believed the cash rate would be increased once more in March, before stalling for a few months, Dr Lowe appeared to hint it would take multiple interset rate hikes to reduce inflation.
In December, Australia’s Consumer Price Index (CPI), which measures household inflation, reflected a 7.8 per cent increase year-on-year, marking the largest annual increase since 1990.
“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” Dr Lowe said.
Former RBA economist and economics lecturer at Monash Business School, Dr Isaac Gross told NCA NewsWire there would most likely be another three rate hikes or two rate rises “for sure”.
“That would get you to 4.1 per cent and I think that’s bottom of the range now. We could be going well into the fours,” said Dr Gross.
Dr Gross said January’s inflation numbers were “exceptionally high” and supported the view the cash rate would increase.
Analysing Dr Lowe’s statement, Dr Gross said it reflected the “uncertainty” of the past few months, citing the “lift off” in inflation, and record-low unemployment rates in Australia and the world.
“I think that recognition of the high amount of uncertainty is a good thing,” he said. “It’s a simple reflection of the truth.”
PropTrack’s Director of Economic Research, Cameron Kusher has also revised his forecasting since Tuesday’s announcement. Previously predicting one final rate rise in March, he’s now amended his forecast to three more cash rate hikes. This would bring the interest rate to 4.1 per cent in May 2023.
He told NCA NewsWire, he was surprised by Dr Lowe’s comments that the Board warned “that further increases in interest rates will be needed over the months ahead”.
“My expectation had been that we’d get this interest rate hike and another one next month,” he said.
“It seems like they’re not convinced that inflation would come down to its target rate for some time and suggests they’ll have to lift interest rates higher in order to achieve inflation coming back to its target range in 2025.”
Dr Chalmers’ three-part plan to address inflation
Speaking from Question Time in Canberra, Treasurer Jim Chalmers said the latest rate rise would place “extra pressure” on households and the Australian economy.
“It’s our job to focus on the broader pressures that are coming at us from around the world and being felt around the kitchen tables of this country,” he said.
He said the government had three ways to address inflation, which would also see interest rates fall.
“The first is to deliver responsible cost of living relief in a way that doesn’t add to inflation and which has an economic dividend. Think cheaper early childhood education, cheaper medicines and also taking some of the sting out of these electricity price rises that we expect to see in our economy,” he said.
“The second part of our plan is obviously to deal with the issues in our supply chains and in our workforce.
“Third part of our plan is to show spending restraint.”
Mortgages to increase by another $80 a month
AMP chief economist Craig Oliver said a 0.25 per cent increase to the cash rate would add $80 to the monthly payment on a typical $500,000 mortgage.
“(That) will take the total increase in monthly payments since April to $980 a month or nearly $12,000 a year. This will likely hit spending in the months ahead,” he said.
Canstar Blue finance expert Steve Mickenbecker warned borrowers there could be another two rate rises on the horizon, bringing more financial pressure.
“I just don’t think anyone can really say there’s not more bad news for borrowers,” Mr Mickenbecker told NCA NewsWire.
“Living costs are going up irrespective, the CPI covers almost everything and they’re going up across the board.
“You pile that with mortgage rates, the Reserve Bank probably has at least another two increases of 2.5 per cent before it can decide to take its foot off the accelerator.”