The Reserve Bank this week hiked the official cash rate much more than expected, by 50 basis points to 0.85 per cent.
It’s the single biggest jump in interest rates for 22 years and RBA governor Philip Lowe says there are more hikes on the way until inflation is reined in to their 2-3 per cent target zone.
The rise would mean an extra $265 a month for a borrower with a loan of $1 million over 25 years.
Economists envisage the cash rate rising to 2.5 per cent by the middle of 2023, which means borrowers will be paying hundreds more a month on repayments.
RBA governor Lowe said the big hike was down to the significant rise in inflation to 5.1 per cent in the March quarter and he expects it to keep rising until sliding back down to the target range of 2-3 per cent by next year.
“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” Dr Lowe said.
“As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.
“Today’s increase in interest rates will assist with the return of inflation to target over time.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market,” he said.
ANZ head of Australian economics David Plank has told the ABC he thinks there’ll be big rate hikes again in July and August.
“The Reserve Bank governor’s statement says explicitly that, “the board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead’,” Mr Plank said.
“This is stronger than the language set out in May and suggests at least another 50 basis points increase is on the cards over the next few months.”
To be exact, Mr Plank forecasts a bigger hike in August, while the RBA waits on the second quarter inflation data. He predicts a 25 basis points lift in July followed by another big 50 basis point lift in August.
High profile AMP chief economist Shane Oliver predicts the cash rate will rise 1.5-2 per cent by the end of this year and will peak at 2.5 per cent or less next year and it will affect house prices.
“We continue to see average home prices falling 10 to 15 per cent over the next 18 months, but this may now occur earlier and faster than previously expected,” Dr Oliver told the ABC.
RateCity research director Sally Tindall said many Australians will be worried about having to absorb the pain of current and expected future rate rises.
“The RBA will need to hike again, potentially as early as next month,” she said.
“They are going to take a rapid-fire approach over the next six to 12 months to hiking the cash rate and getting our inflation under control.
“I think many households around Australia will be in shock at the news of this double hike today.
“However, the RBA has been clear that the cash rate needed to go up. It was still at emergency setting levels.
“It’s now marginally above, we’ve got to remember that these record low rates couldn’t last forever.”
Business owners will also be feeling the pain, just like home owners, with repayments on many business loans also increasing.
Businesses are likely to cop a double whammy, with an expected drop in consumer spending thanks to reduced household budgets.
Businesses will have to dig deep to face rising rates, rising costs and less consumer spending after having to fight through the difficulties of the pandemic for the last two years.
The Reserve Bank this week hiked the official cash rate much more than expected, by 50 basis points to 0.85 per cent.
It’s the single biggest jump in interest rates for 22 years and RBA governor Philip Lowe says there are more hikes on the way until inflation is reined in to their 2-3 per cent target zone.
The rise would mean an extra $265 a month for a borrower with a loan of $1 million over 25 years.
Economists envisage the cash rate rising to 2.5 per cent by the middle of 2023, which means borrowers will be paying hundreds more a month on repayments.
RBA governor Lowe said the big hike was down to the significant rise in inflation to 5.1 per cent in the March quarter and he expects it to keep rising until sliding back down to the target range of 2-3 per cent by next year.
“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” Dr Lowe said.
“As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.
“Today’s increase in interest rates will assist with the return of inflation to target over time.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market,” he said.
ANZ head of Australian economics David Plank has told the ABC he thinks there’ll be big rate hikes again in July and August.
“The Reserve Bank governor’s statement says explicitly that, “the board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead’,” Mr Plank said.
“This is stronger than the language set out in May and suggests at least another 50 basis points increase is on the cards over the next few months.”
To be exact, Mr Plank forecasts a bigger hike in August, while the RBA waits on the second quarter inflation data. He predicts a 25 basis points lift in July followed by another big 50 basis point lift in August.
High profile AMP chief economist Shane Oliver predicts the cash rate will rise 1.5-2 per cent by the end of this year and will peak at 2.5 per cent or less next year and it will affect house prices.
“We continue to see average home prices falling 10 to 15 per cent over the next 18 months, but this may now occur earlier and faster than previously expected,” Dr Oliver told the ABC.
RateCity research director Sally Tindall said many Australians will be worried about having to absorb the pain of current and expected future rate rises.
“The RBA will need to hike again, potentially as early as next month,” she said.
“They are going to take a rapid-fire approach over the next six to 12 months to hiking the cash rate and getting our inflation under control.
“I think many households around Australia will be in shock at the news of this double hike today.
“However, the RBA has been clear that the cash rate needed to go up. It was still at emergency setting levels.
“It’s now marginally above, we’ve got to remember that these record low rates couldn’t last forever.”
Business owners will also be feeling the pain, just like home owners, with repayments on many business loans also increasing.
Businesses are likely to cop a double whammy, with an expected drop in consumer spending thanks to reduced household budgets.
Businesses will have to dig deep to face rising rates, rising costs and less consumer spending after having to fight through the difficulties of the pandemic for the last two years.
