The cash rate has hit its highest level since December 2012, with a $500,000 home loan now costing $880 more per month than before the hikes started in May.
The cash rate has hit its highest level since December 2012, with a $500,000 home loan now costing $880 more per month than before the hikes started in May.
The Reserve Bank of Australia confirmed an eighth-consecutive hike earlier today, with the nation’s benchmark interest rate now set at 3.1 per cent.
It means the cost of borrowing has rocketed by 3 percentage points since the central bank’s tightening cycle started in May.
Mortgage Choice said borrowers with $500,000 outstanding on a loan would be paying $80 more per month after today’s decision.
But since May, monthly payments would be $880 higher, the brokers said.
For a borrower with $1 million outstanding, the eight hikes would have added $1,760 per month, Mortgage Choice said.
The RBA has been acting to stop inflation from running out of control.
“Inflation in Australia is too high, at 6.9 per cent over the year to October,” RBA governor Philip Lowe said in a statement just now.
“Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.
“Returning inflation to target requires a more sustainable balance between demand and supply.”
Mr Lowe said inflation would decline next year as supply-side problems eased.
He also delivered a warning on growth.
“Economic growth is expected to moderate over the year ahead as the global economy slows, the bounce-back in spending on services runs its course, and growth in household consumption slows due to tighter financial conditions,” Mr Lowe said.
“The bank’s central forecast is for growth of around 1.5 per cent in 2023 and 2024.”
The pace of rate hikes had moved faster than some observers expected, with CBA economists in June forecasting the cash rate could hit as high as 2.35 per cent this year.
But expectations have adjusted.
This afternoon, CBA said it had upwardly revised its "terminal rate" (the expected peak of this cycle) to 3.35 per cent, with one more hike in February.
Yesterday, the ASX’s cash rate futures implied a peak rate of about 3.6 per cent before the end of next year.
The economy has been running hot, with unemployment hitting near-50-year lows in recent months.
“It won’t be a popular move but the RBA had little choice but to hike rates to their highest level in a decade,” Callam Pickering, APAC economist at job site Indeed, said.
“Further hikes are likely next year until inflation is under control or genuine cracks begin to appear across the Australian economy.”
Mr Pickering said the pace of tightening should slow, pointing to the cash rate futures numbers.
“That’s perhaps a surprise given that inflation remains red hot,” he said.
“The RBA’s latest inflation outlook would justify aggressive hiking next year but that needs to be balanced against the risks of a severe downturn or recession.”
Major banks pass on rate rise
National Australia Bank, ANZ and Westpac have confirmed their standard total variable rate on home loans will increase by 0.25 per cent following the RBA's decision.
CBA is yet to make an announcement.
Treasurer Jim Chalmers today said inflation would remain persistent for some time and that further rate rises may still be necessary, despite evidence consumer spending is softening.
"I think we are seeing the beginnings of the economic impact of these rate rises," he said.
"Australians with a mortgage and particularly those with a big mortgage are already feeling the impacts of these rate rises since before the election."