The Reserve Bank of Australia (RBA) has hiked the cash rate by 0.50 per cent - bringing the official interest rate to 1.35 per cent.
This is the second month in a row the RBA has done a double-whammy hike - typically only moving 25 basis points at a time.
RBA governor Philip Lowe said inflation is higher across the globe and it will be some time yet before it is back under control.
“Global inflation is high. It is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity,” Lowe said.
“Monetary policy globally is responding to this higher inflation, although it will be some time yet before inflation returns to target in most countries.”
Also read: RBA warning: Inflation and rates to surge
Lowe added that while the cost of living is high in Australia, things aren’t as dire as in other countries.
“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,” he said.
“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.”
What does this mean for mortgage holders?
If the entire 0.50 per cent hike is passed on by lenders, which is likely, a borrower with a loan term of 25 years remaining would see their monthly repayments rise by approximately:
$138 for a $500,000 loan
$166 for a $600,000 loan
$221 for a $800,00 loan
$276 for a $1 million loan
“The hefty hike to the cash rate is strong confirmation from the Reserve Bank of its commitment to tackling inflation head on,” Canstar finance expert Steve Mickenbecker said.
“Early signs are that the property market has slowed, but it is too soon to say that inflation pressures have eased, and the Reserve Bank remains resolute in its attack on inflation.”
Mickenbecker said mortgage holders should prepare to keep paying more.
“With increases in the cash rate in three consecutive months and increases to monthly repayments piling up, it is clear that, as far as the Reserve Bank is concerned, there will be more to come,” he said.
“Borrowers should be preparing for another four or five rate increases this year by refinancing now to a lower rate and stockpiling savings where they can.”
Mickenbecker said, with wage increases yet to flow through to workers, borrowers will struggle to meet the higher repayments on top of the rising cost of living.
“Many Australians are already feeling the squeeze financially, with new Canstar research showing 41 per cent either won’t or don’t know if they will be able to pay at least one of their current bills or loan repayments in full in the next six months,” he said.
However, it’s not all bad news, with savers potentially getting the increase in interest they have been waiting for.
“Savers will be finally starting to celebrate the return of reasonable interest rates for the first time in more than 10 years, and should be pushing their bank to fully pass on the Reserve Bank increases,” Mickenbecker said.
“If their bank doesn’t come to the party, they should be looking for one that does.”