Australian home borrowers have now copped the harshest rate increases in almost three decades with the Reserve Bank raising the cash rate by another half a percentage point.
The latest 0.5 percentage point rise on Tuesday takes the cash rate a three-year high of 1.35 per cent from 0.85 per cent.
This rise, on top of the May and June increases, means home borrowers have now copped 1.25 percentage points worth of rate increases over three consecutive months – the steepest increase in such a short time since late 1994.
The Reserve Bank of Australia has now also raised the cash rate at three consecutive monthly board meetings for the first time since 2010.
The latest increase means a borrower with an average $600,000 mortgage will owe their bank an extra $163 a month as Australia grapples with the worst inflation in two decades.
Australian home borrowers have now copped the harshest rate increases in almost three decades with the Reserve Bank raising the cash rate by half a percentage point
Rate rise pain in 2022
MAY: The 0.25 percentage point rise was the first increase since November 2010, ending era of record-low 0.1 per cent cash rate
JUNE: The 0.5 percentage point rise was the biggest monthly increase since February 2000
JULY: The 0.5 percentage point increase means borrowers have copped 1.25 percentage points of pain in three straight months – most since October to December 1994
With inflation running at 5.1 per cent – the fastest pace since 2001 – RBA governor Philip Lowe has signalled more pain for home borrowers with unemployment at a 48-year low of 3.9 per cent.
‘Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,’ he said on Tuesday.
‘Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices.
‘The floods are also affecting some prices.’
Dr Lowe last month forecast Australia’s inflation rate hitting seven per cent for the first time since 1990 as Russia’s Ukraine invasion keeps global crude oil prices elevated.
He signalled on Tuesday the RBA would keep raising rates to curb consumer spending.
‘One source of ongoing uncertainty about the economic outlook is the behaviour of household spending,’ Dr Lowe said.
The Reserve Bank of Australia has now also raised the cash rate at three consecutive monthly board meetings for the first time since 2010. Governor Philip Lowe last month forecast Australia’s inflation rate hitting seven per cent for the first time since 1990 as Russia’s Ukraine invasion keeps global crude oil prices elevated
Average capital city unleaded petrol prices are now well above $2 a litre, despite a temporary, six-month halving of fuel excise to 22.1 cents a litre in the previous Coalition government’s March budget.
The Commonwealth Bank is expecting the RBA cash rate to hit 2.1 per cent by November while NAB sees that rate being reached in December.
Westpac is predicting a 2.35 per cent cash rate by February 2023 while ANZ is forecasting a 2.25 per cent rate by May next year.
Compare the Market’s banking expert David Ruddiman said the RBA was likely to keep raising rates with inflation well above the RBA’s two to three per cent target.
‘Our cash rate of 1.35 per cent is still too low given inflation is sitting at 5.1 per cent and is heading toward a peak of around 7 per cent before the end of the year,’ he said.
‘This really means the cash rate needs to climb above 3.5 per cent and stay there for a sustained period to bring inflation back to the Reserve Bank’s target.’
Financial markets are expecting the RBA cash rate to hit 3.5 per cent by March next year, with the Australian Securities Exchange 30-day interbank futures pricing in eight more monthly rate increases.
The latest 0.5 percentage point means a borrower with an average $600,000 mortgage will see their monthly repayments surge by $163, rising from $2,495 to $2,658 as their variable rate rose in line with the RBA move.
The Commonwealth Bank, Australia’s biggest home lender, last week trimmed its popular variable rate by 0.15 percentage points to 2.89 per cent but the RBA’s latest increase would most likely see that rise to 3.39 per cent.
The latest rate increases will further squeeze household budgets with a 141 per cent increase in wholesale electricity prices, in the year to March, set to be reflected in retail power bills, making up a third of what consumers pay.
Even before the second Lockyer Valley floods in May, vegetable prices in the year to March surged by 6.6 per cent.
The Reserve Bank of Australia signalled on Tuesday that it would keep raising rates to curb consumer spending (pictured is cleaner outside the RBA headquarters in Sydney’s Martin Place)
That was even more elevated than the overall headline inflation rate of 5.1 per cent – itself the highest since 2001.
Consumers have been paying $12 for an individual lettuce.
The Reserve Bank is now worried about surging wages, with unemployment at low levels and job vacancies surging.
‘The bank’s business liaison program and business surveys continue to point to a lift in wages growth from the low rates of recent years as firms compete for staff in the tight labour market,’ it said.
Since July 1, the minimum wage has increased by 5.2 per cent as another 2.5 million workers on awards received a 4.6 per cent pay increase from the Fair Work Commission.
Both sets of workers received a $40 a week pay increase.
Across the economy, wages in the year to March grew by just 2.4 per cent, and have been stuck below the long-term average of 3 per cent since mid-2013.
What a 0.5 percentage point rate rise in July means for borrowers
$500,000: Up $136 from $2,079 to $2,215
$600,000: Up $163 from $2,495 to $2,658
$700,000: Up $191 from $2,910 to $3,101
$800,000: Up $218 from $3,326 to $3,544
$900,000: Up $245 from $3,742 to $3,987
$1,000,000: Up $273 from $4,157 to $4,430
Monthly repayments based on popular Commonwealth Bank variable rate rising from 2.89 per cent to 3.39 per cent should the Reserve Bank cash rate in July rise from 0.85 per cent to 1.35 per cent