Despite last month’s interest rate pause, the Reserve Bank (RBA) hit households with a 0.25 per cent hike today, bringing the official cash rate to 3.85 per cent.
This means Aussies have been hit with the 11th interest rate hike in 12 months.
RBA governor Philip Lowe said while inflation has “peaked” it is still too high and more needs to be done to bring it back down.
Also read: RBA review: The good, the bad and the ugly
“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today,” Lowe said.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
Finder head of consumer research Graham Cooke said the news was a heavy blow for many Aussies struggling to get by.
“Australians with an average loan size of $586,000 will be forking out around $14,000 more per year compared to what they were paying this time last year,” Cooke said.
“The market consensus is that we are now at the peak of a frenzied, steep climb. The question yet to be answered is how well Aussie homeowners will be able to breathe in the thin air.
“If the RBA does ease the cash rate, it will likely do so gradually, with a watchful eye on inflation.”
How much more will my mortgage cost?
More than two in five Aussies said their rent or mortgage was one of their most stressful expenses in April, according to Finder research.
Average Aussie mortgage repayments
Average home loan rate*
Average monthly repayment
Average monthly increase
Average annual repayment
Average annual increase
May 2023(full rate rise applied)
When will interest rates drop?
Probably not for some time because inflation is still too high. The monthly inflation data showed inflation rose 7 per cent in March.
The International Monetary Fund (IMF) predicted interest rates worldwide would fall back to pre-pandemic levels once inflation was brought down.
However, more than half of experts asked by Finder disagreed with that prediction, saying interest rates were likely to remain above pre-pandemic levels.
Cooke said interest rates just prior to the pandemic were historically low - at 0.10 per cent - and inflation would need to drop significantly to meet those levels.
The major banks (CBA, ANZ, NAB and Westpac) predicted interest rates would start to be cut at the end of this year or throughout next year.