RBA interest rates, inflation: Cash rate hits 3.6 per cent in 10th consecutive rate rise


Reserve Bank Governor Philip Lowe has issued a grim update on Australia’s battle with rampant inflation, after the RBA lifted rates for a tenth consecutive time to 3.6 per cent on Tuesday.

The expected 25 basis rise was confirmed after the Reserve Bank board met on Tuesday afternoon, with the cash rate at its highest since June 2012.

Mr Lowe flagged more “tightening of monetary policy will be needed” to bring inflation down to the goal range of 2 to 3 per cent – and revealed when that might first be achieved.

As of the December 2022 quarter, the consumer price index was at 7.4 per cent.

“The central forecast is for inflation to decline this year and next, to be around 3 per cent in mid-2025. Medium-term inflation expectations remain well anchored, and it is important that this remains the case,” he wrote.

“The board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy.

“The board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”

Analysts from the big four banks have predicted a peak cash rate of 3.85 to 4.1 per cent, indicating a potential two further 25 basis point hikes, before rates are paused.

According to Finder, the average monthly repayment on a $604,346 home loan has increased by $1111, from $2697 in April 2022 to $3808 in March 2023. If a predicted cash rate peak of 4.1 per cent does occur, the average monthly repayment will hit $4009, or an annual increase of $15,744.

Treasurer: ‘This was expected, but it will still sting’

Treasurer Jim Chalmers conceded the latest interest rate rise would “make life harder for many Australians already under the pump”.

“This was expected, it was flagged, the markets anticipated it, but it will still sting,” he said during Question Time.

“The Reserve Bank takes its decisions independently and that independence is an important feature of our system. The government’s job is to take responsibility for those things that we have an influence over.”

Dr Chalmers said Australia’s economy had been hit by a range of global inflationary pressures, while also being exascabated by local supply chain issues.

“Australians understand that a lot of this inflation is coming at us from around the world, and they understand that broken supply chains here in Australia have been part of the problem as well,” he said.

“We take responsibility for working through this inflation issue in a responsible and a methodical way to address inflation in the ways that we can.”

Mr Lowe also acknowledged that rate hikes were having a “painful squeeze” on household budget sheets, however flagged a period of financial uncertainty.

“Household balance sheets are also being affected by the decline in housing prices,” he wrote.

“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.”

Road out of inflation bubble uncertain

Although Mr Lowe had flagged further interest rate increases would be needed “in the months ahead” in February, his March statement was less clear.

On Tuesday he wrote: “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”.

Mr Lowe said the Board would consider the state of the global economy, household spending, the inflation outlook and labour market indicators like unemployment in making any further changes.

The global reaction to large and rapid interest rates being put in place by most central banks and banking authorities, will also be felt domestically, he conceded.

Big Four Banks flag more rate pain

Analysts from the big four banks have forecast the rate to peak between 3.85 per cent to 4.1 per cent by May, which would suggest one to two more rate rises after Tuesday.

Westpac Chief Economist, Bill Evans believed the cash rate will peak at 4.1 per cent after two more rate increases in April and May, before coming down in March 2024.

ANZ and NAB have released similar predictions, while the Commonwealth Bank is slightly more optimistic. It has flagged one more 0.25 per cent increase in April, which will bring the cash rate to 3.85 per cent.

After handing down last month’s rate rise, the RBA governor flagged further pain for borrowers, as the board attempts to bring inflation into its target range of 2 to 3 per cent.

The consumer price index hit a 30-year high of 7.8 per cent in December, however the Australian Bureau of Statistic’s monthly indicator suggests it decreased to 7.4 per cent in January.

“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,” he wrote in a statement.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

‘Certainly not the last’

Finance Brokers Association of Australia’s Managing Director Peter White said Tuesday’s rate rise would “almost certainly not be the last rise”.

“Each rate rise makes things even tougher for households and brings some closer to no longer being able to afford their mortgages or rental payments,” he said.

He advised struggling home owners to “act early” and get in contact with their bank or lender sooner rather than later.

“Our advice to consumers who feel that they may not have the capacity to handle the increases – and in particular those coming off low fixed rates – is to act early and not wait until you can’t make a payment,” he said.

“While you are making payments you still have the power to change, but once the bank is forced to get involved your ability is more restricted.”

PropTrack Senior Economist Eleanor Creagh believed interest rates were now “closer to the peak”.

“If the Reserve Bank hits pause on its tightening cycle later this year, home prices will likely begin to stabilise as some of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs reduces,” she said.

On Sunday Treasurer Chalmers also ruled out the possibility of a 1990s financial crisis where the interest rate peaked at 17.5 per cent, and said he didn’t believe Australia would go into a recession.

“The Treasury forecasters, the Reserve Bank and others are not expecting a recession,” he said, speaking to on Nine’s 60 Minutes.

“But I need to be upfront with your viewers and say that we do expect our economy to slow considerably.”

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