Reserve Bank Rate Hike Slugs Additional Owners $2000


The Reserve Bank of Australia took steps to contain inflation with another 50 basis point increase in cash rates.

Spot rates have gone from 0.35% to 0.85%, which will add another $2,000 to the average homeowner’s mortgage repayments per year.

At today’s monetary policy meeting, the Reserve Bank of Australia’s board decided to raise cash rates to reduce inflationary pressures in the economy and warned that other increases were in progress.

“The board expects to take further steps in the process of normalizing monetary conditions in Australia over the coming months,” RBA Governor Philip Lowe said.

“The magnitude and timing of future interest rate increases will be guided by incoming data and the Board’s assessment of the outlook for inflation and the labor market.

“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

AMP chief economist Shane Oliver said the RBA remained hawkish, pointing to further hikes.

Oliver said he expects rates to peak between 2 and 2.5% next year.

According to the managing director of SQM Research, Louis Christopher, the increase in cash rates could encourage more investors in the real estate market.

“In times of high inflation, people look to real estate as a hedge against the devaluation of money,” Christopher said.

“With rents up 15% across the country over the past 12 months, investors will be keeping an eye out for bargains, good rental returns and the possibility of further rising rents over time.”

While most economists had expected a rate hike, few had expected a 50 basis point hike.

Moody’s deputy director Harry Murphy Cruise said the sharp rise in cash rates was “as much about managing expectations as reducing the heat of the booming economy.”

“Short-term inflation expectations are rising and the RBA needs to tame those gains,” he said.

“How quickly interest rate normalization continues will depend on how businesses and families respond to these higher borrowing costs, as well as the pace of real wage gains.”

Graham Cooke, head of consumer research, said this month’s cash rate hike would cost homeowners almost $2,000 more a year.

“The last few years have seen a lot of buyers flooding the market, with interest rates at rock bottom…those days are certainly over,” Cooke said.

“The average homeowner will see their monthly repayments jump by $159, which equals $1,907 per year thanks to this increase alone, and more to come.”

Lowe said economic uncertainty surrounded household spending with higher inflation, but the economy was in good shape with a strong pipeline of construction work.

“Housing prices have fallen in some markets in recent months, but remain more than 25% higher than before the pandemic, supporting household wealth and spending,” he said.

“While the central scenario is for strong household consumption growth this year, the board will pay close attention to these various influences on consumption when assessing the appropriate monetary policy framework.”


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