The Reserve Bank of Australia (RBA) has hiked the cash rate for the fourth consecutive month.
The RBA lifted the official interest rate by another 0.50 per cent, taking the interest rate to 1.85 per cent.
RBA governor Philip Lowe said the bank was focused on bringing inflation back under control.
“The board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel,” Lowe said.
“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments.”
Lowe mentioned inflation was the highest it has been since the early 1990’s and is expected to peak later this year before declining again.
“Today's increase in interest rates is a further step in the normalisation of monetary conditions in Australia,” he said.
“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy.
“The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path.”
How much will it cost?
Borrowers are struggling to keep up with the ever-rising payments and today’s hike is likely to put more pressure on households as the cost of living also dents budgets.
For someone with a $500,000 debt at the start of May, with 25 years remaining, the total increase across the four hikes would be $472 a month, according to data from RateCity.com.au.
That’s like buying a new washing machine, every single month.
Impact of 0.50% hike
Increased monthly cost
May - Aug hikes combined
Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA average existing owner-occupier variable rate of 2.86% and assumes banks pass the cash rate hikes on in full.
“Some borrowers may now be hitting the panic button as the rate hikes start to snowball,” RateCity research director Sally Tindall said.
“Finding an extra $500 a month to cover the mortgage will be a struggle for many families who are already juggling rising grocery and petrol costs.”
Tindall said with inflation tipped to rise to 7.75 per cent, and several more interest rate hikes in the pipeline, many households will need to “bunker down” in the next six-12 months.
“If the cash rate gets to 3.35 per cent, as forecast by Westpac and ANZ, the average borrower could soon be on a variable interest rate that’s over 6 per cent,” she said.
“That’s going to hurt families who have large debts compared to their incomes.”
What you can do
While the major jump in monthly mortgage repayments may seem daunting, there are no guarantees the cash rate will hit 3.35 per cent by the end of the year - these are just forecasts.
“If these rate hikes have got you scrambling, don’t panic, but more importantly, don’t put your head in the sand,” Tindall said.
“Put your monthly expenses under the microscope and see where you can get better deals.
“Haggling with your lender for a lower mortgage rate, or refinancing to a different lender, can help take the pressure off.”
Lowest advertised variable rates on RateCity
(from lenders who have announced July RBA hikes)
Bank of Us
Credit Union SA
Source: RateCity.com.au Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.
Big Four banks: lowest variable rates
3.14% for 2 years
Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.