Anthony Albanese has refused to speak about the Reserve Bank’s largest interest rate rise in 22 years when probed by reporters during an official visit to Indonesia.
The central bank hiked the cash rate to 0.85 per cent on Tuesday, meaning mortgage holders will be forced to shell out even more on their monthly repayments as the cost of living soars.
But the newly-elected prime minster said he wasn’t going to to weigh in on the 0.50 per cent jump, instead passing the buck to Treasurer Jim Chalmers in Australia who admitted the economic pain is likely to get worse.
His refusal to comment on the economic data comes after an embarrassing blunder on the first day of the campaign trail two months ago, where the Labor leader was unable to state the cash rate – which was had been at 0.1 per cent at the time.
Mr Albanese also wrongly guessed the unemployment rate was 5.4 per cent on the same day, when it was 4.0 per cent.
How much more will YOU have to pay on your home loan?
$500,000: Monthly repayments to rise by $133 from $2,410 to $2,543
$600,000: Monthly repayments to rise by $159 from $2,890 to $3,049
$750,000: Monthly repayments to rise by $199 from $3,610 to $3,809
$1million: Monthly repayments to rise by $265 from $4,810 to $5,075
Data based on variable rate increasing from 3.11 per cent to 3.61 per cent
‘I said on day one, I will not be responding to domestic matters while overseas,’ Mr Albanese said.
‘I’ll leave that to [Treasurer] Jim Chalmers.’
He refused to take any more questions on the subject.
The move was branded ‘poor form’ by Sky News political editor Andrew Clennell.
The RBA’s shock decision is just the second rate rise in 11 years after the central bank moved from the record low setting of 0.1 per cent in May to curb spiralling inflation.
If banks pass on the most significant rate increase since 2000 in full, it will add $133 a month on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1million.
The Big Four financial institutions, including the Commonwealth Bank, ANZ, Westpac and NAB, all raised interest rates in line with the RBA last month and are expected to do the same again in a move that will make the average homeowner $2000 a year worse off.
Why do interest rates need to rise?
The most basic principle of economics is supply and demand.
When supply outstrips demand prices will fall, but when demand is great and supply is scarce the cost of products will rise.
That’s why something rare and in demand like gold is expensive, whereas something bountiful such as potatoes is relatively cheap.
This rule also applies to money itself.
Huge Australian government stimulus during Covid totalling more than one third of a trillion dollars – at a time of record low interest rates – has meant there’s more money competing for the same amount of goods and services.
The extra supply of cash is what’s now driving up prices (along with a range of other global factors including the war in Ukraine and supply chain chaos in the wake of the pandemic).
But by raising the cash rate and making money harder to borrow, it should limit the supply of money and help bring prices down.
Cold comfort to those forced to shell out more on their mortgage.
Further rapid-fire rate hikes are widely predicted to follow every month until at least the end of the year, as Treasurer Jim Chalmers admitted the cost of living crisis will get ‘harder’ for every Australian.
Economists had widely predicted the cash rate to lift by 0.25 or 0.40 per cent, with the shock move indicating inflation could be even worse than first thought.
Treasurer Chalmers acknowledged ‘we have an incredibly difficult challenge ahead’.
‘High and rising inflation, rising interest rates, falling real wages at a time when our ability to respond to these challenges is constrained by the fact that the budget is absolutely heaving with Liberal debt,’ he said taking a swipe at Scott Morrison’s government.
‘We need to be honest and up front with the Australian people about the nature, the severity, the magnitude of this inflation challenge that we confront.’
He added that economists, government advisors and the RBA all predict that inflation ‘will get harder before it gets easier’.
‘Australians already know that because they are paying ever higher prices for their groceries and energy and now to service their mortgage as well,’ he said.
RBA Governor Philip Lowe now has no other way to get cost of living pressures under control after the Australian government handed out more than one third of a trillion dollars in stimulus during the Covid pandemic in 2020 and 2021.
The generous spending coupled with the record low interest rates to spur on economic growth, has seen inflation in the year to March surge to 5.1 per cent – the fastest rise 2001.
Aussie families are feeling the pinch with some fruit and vegetables up 50 per cent since the start of the year, petrol prices over $2-a-litre and wholesale energy bills skyrocketing by 141 per cent.
‘Inflation in Australia has increased significantly,’ Mr Lowe said in the RBA’s monetary statement accompanying the decision.
‘While inflation is lower than in most other advanced economies, it is higher than earlier expected.
‘Today’s increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.’
Newly-elected Treasurer Jim Chalmers (pictured) acknowledged ‘we have an incredibly difficult challenge ahead’
The average Australian homeowner is set to be $2000-a-year worse off
Upward pressure on prices has also been compounded by several other global and domestic factors.
Western powers imposed sanctions on major oil producer Russia, after Vladimir Putin’s force invaded Ukraine in February sending the price soaring amid a supply shortfall.
‘The Board will also be paying close attention to the global outlook, which remains clouded by the war in Ukraine and its effect on the prices for energy and agricultural commodities,’ Mr Lowe said.
‘Real household incomes are under pressure in many economies and financial conditions are tightening, as central banks withdraw monetary policy support in response to broad-based inflation.
‘There are also ongoing uncertainties related to Covid, especially in China.’
At the same time, supply chain chaos still lingering on the heels of the Covid pandemic is adding to the problem.
For Australia, the recent floods and bitterly cold weather has also impacted on food production and energy demands.
The RBA hopes that tightening the money supply will help bring down some of these costs.
The Reserve Bank of Australia has hiked the cash rate to 0.75 per cent on Tuesday, meaning mortgage holders will be forced to shell out even more on their monthly repayments as the cost of living soars
‘Central banks across the world are struggling to get on top of inflation, and the RBA does not want to be one of them,’ RateCity research director Sally Tindall said.
She warns the cash rate by Christmas is likely to lift to about 1.75 per cent, leaving someone paying off a $600,000 home forced to cough up an extra $532 a month.
‘Don’t just assume you can take these hikes in your stride. Work out what your repayments will look like by Christmas next year and make sure that number fits into your budget,’ Ms Tindall said.
‘A lot of people think just because rates are on the rise, it’s not a good time to renegotiate their home loan. But in many cases, that’s just not true.
‘Banks still need to keep new business rolling through the door, and they’re typically doing it by offering sharper discounts to refinancers willing to switch lenders,’ she said.
If banks pass on the increase in full, Australians paying off a $600,000 home at a variable rate will now have to handover about $127 a month more
The Big Four financial institutions including the Commonwealth Bank, ANZ, Westpac and NAB all raised interest rates in line with the RBA last month and are expected to do the same again
The average homeowner over the course of the next year is going to be hit with an extra $2000 in costs.
Graham Cooke, head of consumer research at Finder, says today marks the end of the pandemic boom in the housing market.
‘The average homeowner will see their monthly repayments jump by $159 – equivalent to $1,907 per year from this increase alone, with more to come,’ he said.
‘The past few years have seen a huge number of buyers flood into the market, with rock-bottom interest rates. Those days are certainly over.’
RBA Governor Philip Lowe (pictured) now has no other way to get cost of living pressures under control after the Australian government handed out more than one third of a trillion dollars in stimulus during the Covid pandemic in 2020 and 2021
How much you could be paying on your loan in 2023?
How much extra you could be paying by Christmas?
$500,000: Monthly repayments will rise by $442
$600,000: Monthly repayments will rise by $532
$750,000: Monthly repayments will rise by $665
$1,000,000: Monthly repayments will rise by $885
Data is based the Reserve Bank of Australia raising the cash rate to 1.75 per cent by the end of 2022, inline with expectations.
How much extra you could be paying by the end of 2023?
$500,000: Monthly repayments will rise by $652
$600,000: Monthly repayments will rise by $782
$750,000: Monthly repayments will rise by $977
$1,000,000: Monthly repayments will rise by $1303
Data based on the Reserve Bank of Australia raising the cash rate to 2.50 per cent by the end of 2023, inline with expectations.