RBA Interest Rates: Reserve Bank increases rates by 0.25 percent for the 10th time
All four major banks have tipped interest rates to rise by a further 0.25 per cent, but there are warnings that Australians will feel “major pain” over the decision to raise them for the tenth consecutive time.
Economists think the Reserve Bank of Australia (RBA) will raise interest rates to 3.6 percent — marking their highest rate since May 2012 — after Governor Philip Lowe announced more hikes would be needed after the meeting of February.
This would mean adding another $77 to monthly payments on a $500,000 loan, according to RateCity, with a whopping $983 more a month accrued since the first rate hike in May 2022 — or a 42 percent increase.
Meanwhile, a $1 million loan, the median house price in Australia, would add $156 to monthly mortgage payments.
Rates have risen from a record low of 0.1 percent since May and it’s not just homeowners unleashing the “massive financial pain”, younger people and lower-income households are also very “vulnerable”.
With annual inflation at 7.4 percent, Westpac economist Bill Evans believes there will be more rate hikes and it’s going to be a “very tough time” with “a lot of pain out there.”
“Overall, the household sector has $300 billion in excess savings – extraordinary. But we believe that a very large part of that is in the hands of the rich,” he said.
The RBA’s own data estimates that 15 percent of variable-rate borrowers would run out of cash after paying off mortgages and paying bills if official interest rates rose to 3.6 percent.
It also showed that 10 percent of variable-rate borrowers would struggle and have to use savings to continue meeting their loan payments, but the RBA said other borrowers would have “limited ability” to do so.
Westpac chief executive Peter King also described rate hikes as a “very blunt tool” that hit some households harder as Australians grapple with the skyrocketing cost of living.
“Prices are skyrocketing, interest rates are rising and depending on where you are, there are opportunities to grow and prosper, or you may have to adapt to survive. So the impact will be felt in a very uneven way,” he said in a speech to clients on Monday.
“The cost of living and inflation are serious challenges, and they hit some Australians very hard. In response, the RBA is raising interest rates, and we know this is a very blunt tool that will be felt unevenly.
The ACTU has called on the RBA to halt rate hikes — warning that working people on low and middle incomes are already struggling to make ends meet on wages that are not keeping pace with inflation.
Meanwhile, further rate hikes will push them off a cliff, putting mortgage holders and renters at particular risk, the ACTU said.
The union believes rate hikes have already “done enough damage” as economic growth has slowed, unemployment is rising and consumer confidence is at an all-time low.
“Working people are feeling great pain from the brutal interest rate hikes unfairly imposed on them to contain inflation while corporate profits are rising,” said ACTU Secretary Sally McManus.
“Employees are being punished for a problem they did not cause. As many as one in four skip meals and many don’t go to the doctor when needed due to this cost of living crisis.
“Australian workers must not be left to bear the brunt of inflation fixation caused by unchecked profiteering during an unprecedented series of domestic and global crises.
“Between the RBA and big business, the modest savings of the average Australian have been depleted by interest rate hikes and big business raising prices much higher than necessary.”
ANZ, NAB and Westpac all predict interest rates will peak at 4.1 percent with increases in March, April and May, while the Commonwealth Bank believes rates will only rise to 3.85 percent.
CBA backed up its call by saying that the RBA is “underestimating the delayed impact the already-realized rate hikes will have on the economy in 2023.”
It also expects rates to be cut in the last three months of 2023, but Westpac, NAB and ANZ have all predicted rates won’t fall again until next year.