RBA lifts cash rate for 9th time

Analysts had predicted the 25 basis point increase; however, some forecasted that the cash rate could increase by as much as half a per cent.

A statement from RBA Governor, Philip Lowe warned it would be “some time” before inflation would be returned to its target rate of 2 to 3 per cent. He also acknowledged the inevitable pain this would have for households struggling with rising cost of living and mortgage stress.

“There is uncertainty around the timing and extent of the expected slowdown in household spending. Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living,” his statement read.

Household balance sheets are also being affected by the decline in housing prices. Another source of uncertainty is how the global economy responds to the large and rapid increase in interest rates around the world.

“These uncertainties mean that there are a range of potential scenarios for the Australian economy.”

House prices to fall

Tuesday’s increase is the ninth consecutive time the RBA has lifted rates since May 2022 and the highest the cash rate has been since September 2012. In May 2022, the interest rate was at a historic low of 0.1 per cent.

PropTrack director economic research Cameron Kusher said the past nine months had seen the “fastest and most significant interest rate tightening cycle in many decades”.

Tuesday’s rate lift will likely affect house prices, with Mr Kusher predicting the biggest falls in “more expensive cities”.

“Nationally, we are forecasting prices to fall by a further 7 per cent to 10 per cent by the end of this year,” he said.

“With the RBA’s hike of 25 basis points today, we’re expecting an additional rate rise of 25 basis points, or thereabouts, likely to follow next month. Thereafter, we expect rates to remain on hold, with the potential for them to be reduced in late 2023 or early 2024.

“We anticipate these further interest rates rises will push prices lower. However, a lower interest rate peak and earlier than expected interest rate cuts could ease price falls.”

Mortgages to increase by

AMP chief economist Craig Oliver said another quarter of a percentage point rise would add $80 to the monthly payment on a typical $500,000 mortgage.

“(That) will take the total increase in monthly payments since April to $980 a month or nearly $12,000 a year. This will likely hit spending in the months ahead,” he said.

Canstar Blue finance expert Steve Mickenbecker warned borrows there could be another two rate rises on the horizon, bringing more financial pressure.

“I just don’t think anyone can really say there’s not more bad news for borrowers,” Mr Mickenbecker told NCA NewsWire.

“Living costs are going up irrespective, the CPI covers almost everything and they’re going up across the board.

“You pile that with mortgage rates, the Reserve Bank probably has at least another two increases of 2.5 per cent before it can decide to take its foot off the accelerator.”