Reserve Bank of Australia hikes interest rates in September for the fifth month in a row


Australian home borrowers have copped the fifth straight monthly interest rate rise with the Reserve Bank imposing another 0.5 percentage point increase.

The latest 50 basis point jump in the cash rate takes it to seven-year high of 2.35 per cent, up from an existing six-year high of 1.85 per cent.

The RBA has now raised the cash rate for the fifth straight month for the first time since it began publishing a target interest rate in early 1990.

Borrowers have copped rate rises in May, June, July, August and now September of 2.25 percentage points – the steepest series of increases in a calendar year since 1994. 

Reserve Bank Governor Philip Lowe stated this would be far from the last rate rise during this monetary policy tightening cycle, with inflation in 2022 expected to hit a new 32-year high as consumers keep on spending.

‘The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path,’ he said on Tuesday.

‘The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.’

Australian home borrowers have copped the fifth straight monthly interest rate rise with the Reserve Bank imposing another 0.5 percentage point increase. A 50 basis point increase in the cash rate takes it to seven-year high of 2.35 per cent, up from an existing six-year high of 1.85 per cent

A borrower with an average $600,000 mortgage will now be faced with a $173 jump in their monthly mortgage repayments as the central bank battles the worst inflation since 1990 and borrowers deal with the highest cash rate since February 2015.

What another 0.5 percentage point rate rise will mean in September

$500,000: Up $145 to $2,472 from $2,327

$600,000: Up $173 to $2,966 from $2,793

$700,000: Up $202 to $3,460 from $3,258

$800,000: Up $231 to $3,955 from $3,724

$900,000: Up $260 to $4,449 from $4,189

$1,000,000: Up $289 to $4,943 from $4,654

Calculations based on the cash rate rising to 2.35 per cent from 1.85 per cent, which would see a popular Commonwealth Bank variable climb to 4.29 per cent from 3.79 per cent 

 

The latest increase means this borrower would have seen their monthly mortgage repayments surge by $573 since early May.

Home loan servicing costs set to climb to $2,879 from $2,793 in coming weeks – as a popular variable rate climbed to 4.29 per cent from 3.79 per cent.

Just four months ago, repayments stood at $2,306 back when the cash rate was still at a record-low of 0.1 per cent and the Commonwealth Bank was still offering 2.29 per cent variable mortgage rates.

This occurring just three weeks before fuel excise doubles again to 44.2 cents a litre, which from September 29 could see average unleaded petrol prices climb back above $2 a litre.

Labor Prime Minister Anthony Albanese and Treasurer Jim Chalmers have both indicated they won’t be continuing with the former Coalition government’s six-month halving of excise to 22.1 cents a litre, at a cost of $3billion.

The Australian Competition and Consumer Commission, tasked with stamping out price gouging, noted average petrol prices had still climbed to $2.10 a litre in June, despite the excise halving, as a result of higher crude oil prices. 

Gina Cass-Gottlieb, the ACCC’s chairwoman, noted prices still hit a 14-year high even with the excise cut, and was concerned petrol retailers could get tricky in three weeks’ time. 

‘We will shortly be engaging with fuel wholesalers and retailers to say that we do not expect to see uncharacteristic or abnormal wholesale and retail price increases in the days leading up to, and on the day of, or after, the reintroduction of the full rate of fuel excise,’ she said.

The RBA has now raised the cash rate for the fifth straight month for the first time since it began publishing a target interest rate in 1990. Borrowers have copped rate rises in May, June, July, August and now September of 2.25 percentage points - the steepest series of increases in a calendar year since 1994 (pictured are houses at Paddington in Brisbane)

The RBA has now raised the cash rate for the fifth straight month for the first time since it began publishing a target interest rate in 1990. Borrowers have copped rate rises in May, June, July, August and now September of 2.25 percentage points – the steepest series of increases in a calendar year since 1994 (pictured are houses at Paddington in Brisbane)

The Commonwealth Bank, Australia’s biggest home lender, is expecting the RBA to raise rates again in November by a smaller 0.25 percentage points, taking the cash rate to 2.6 per cent.

Interest rate rises in 2022

MAY: Up 0.25 percentage points to 0.35 per cent

This ended the era of the 0.1 per cent cash rate and marked the first rate rise since November 2010

JUNE: Up 0.5 percentage points to 0.85 per cent

This was the biggest monthly increase since February 2000

JULY: Up 0.5 percentage points to 1.35 per cent

This was the first back-to-back increases of 50 basis points since the Reserve Bank began publishing a target cash rate in 1990 

AUGUST: Up 0.5 percentage points to 1.85 per cent

SEPTEMEBER: Up 0.5 percentage points to 2.35 per cent 

Inflation in the year to June surged by 6.1 per cent, the steepest increase since 1990 when the one-off effect of the GST introduction in 2000 was stripped out. 

This was more than double the wage price index of 2.6 per cent, which means most workers are effectively suffering a cut in real wages as inflation rises at more than double the pace of pay.

An unemployment rate of just 3.4 per cent in July, the lowest since August 1974, has so far failed to translate into broader wage increases despite employers struggle to recruit staff, but the RBA is watching for signs of emerging wage inflation. 

‘Wages growth has picked up from the low rates of recent years and there are some pockets where labour costs are increasing briskly,’ Dr Lowe said.

‘Given the tight labour market and the upstream price pressures, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.’

An Australian earning an average, full-time salary of $92,030 is now unable to get an average $600,000 loan with the banks required to assess a potential borrower’s ability to cope with a three percentage point increase in variable mortgage rates.

Australia’s median house and unit price in August fell by 1.6 per cent to $738,321, marking the most severe monthly decline since January 1983, CoreLogic data showed.

Borrowers aren’t the only ones having a hard time, as variable mortgage rates increase, with rents going up by double-digit margins from the city centre to the outer suburbs.

In the three months to early September, Sydney city weekly rents have surged by 12.9 per cent or $98 to $860.81, SQM Research data showed.

The outer suburbs are also copping double-digit rent increases, with tenants in Liverpool 38km south-west of Sydney seeing their quarterly rent rise by 10.1 per cent or $43 a week to $478.66 in an area with a tight 1.3 per cent vacancy rate.

Everybody’s Home spokeswoman Kate Colvin said massive rent increases were coinciding with rising food and petrol costs.

This occurring just three weeks before fuel excise doubles again to 44.2 cents a litre, which from September 29 could see average unleaded petrol prices climb back above $2 a litre (pictured is a stock image)

This occurring just three weeks before fuel excise doubles again to 44.2 cents a litre, which from September 29 could see average unleaded petrol prices climb back above $2 a litre (pictured is a stock image)

‘This is a social calamity and an economic disaster, with the double whammy of record low vacancies and skyrocketing rents making it impossible to find an alternative, more affordable home,’ she said.

‘Renters on modest incomes are bearing the cost of the national inflation challenge. 

‘This is both unfair and unwise.’

But rate rises have so far failed to dent broader consumer activity with Australian Bureau of Statistics for July showing an 18.4 per cent increase in spending.

Dr Lowe indicated he was worried recent rate rises had failed to curb consumer spending, with the cash rate still below the neutral level of 2.5 per cent. 

‘An important source of uncertainty continues to be the behaviour of household spending,’ he said.

‘Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.’

Subsequent rate rises in August and September could  however begin to bite for those who haven’t yet had to cut back on their spending. 

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