Pain for millions of Australians homeowners as new bank boss makes her first call to HIKE interest rates: Here’s how much it will cost you
By Stephen Johnson, Economics Reporter For Daily Mail Australia
03:31 07 Nov 2023, updated 04:34 07 Nov 2023
Australian borrowers have copped the 13th rate rise in 18 months – taking the Reserve Bank cash rate to a 12-year high of 4.35 per cent as inflation stays ‘higher for longer’.
Michele Bullock has presided over her first rate hike as governor and chillingly hinted at more pain to come – with the latest quarter of a percentage point increase adding to the most severe pace of monetary policy tightening since 1989.
‘Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago,’ she said on Tuesday afternoon.
‘The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly.’
Australia’s Big Four banks had all expected a Melbourne Cup Day rate rise because the consumer price index (CPI) in the year to September rose by 5.4 per cent, marking only a small change from the 6 per cent annual pace in the June quarter.
In an ominous sign, the RBA is now expecting inflation to return to the top of its 2 to 3 per cent target in late 2025 instead of June 2025.
‘Since its August meeting, the board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts,’ Ms Bullock said.
‘The weight of this information suggests that the risk of inflation remaining higher for longer has increased.’
In a chilling sign, Ms Bullock hinted at even more rate rises, despite monthly mortgage repayments surging by 68 per cent in just 18 months.
‘The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,’ she said.
The Reserve Bank on Tuesday updated its forecasts to have inflation falling to 3.5 per cent by the end of 2024 and 3 per cent in late 2025.
That is a departure from its August statement on monetary policy.
‘The board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,’ Ms Bullock said.
The first RBA increase since June will add $99 to an average, $600,000 mortgage, with the cash rate of 4.35 per cent now at the highest level since December 2011, following the latest quarter of a percentage point increase from an 11-year high of 4.1 per cent.
Annual repayments on a typical Australian mortgage will, this month, be $18,744 higher than they were in early May 2022 when Reserve Bank interest rates were still at a record-low of 0.1 per cent and the banks offered mortgage rates starting with a ‘two’.
The latest quarter of a percentage point rate rise will see a Commonwealth Bank variable rate rise to 6.69 per cent, up from 6.44 per cent.
Tuesday’s increase marked the seventh Melbourne Cup Day hike during the past 20 years, with the bad news also occurring in 2003, 2006, 2007, 2009, 2010 and 2022.
Philip Lowe was replaced as RBA governor in September after he suggested in 2021 rates would stay on hold until 2024 ‘at the earliest’ only to increase them 12 times in little more than a year as Russia’s Ukraine invasion pushed up crude oil prices during a time of Covid supply constraints.
Compare the Market’s economic director David Koch, better known as the former host of Sunrise, said there were no Melbourne Cup Day winners from the latest 25 basis point increase.
‘A rate rise was definitely short odds today, but it still doesn’t help the pain at the hip pocket,’ he said.
‘Another $100 hit to minimum monthly repayments for some, and when we can least afford it.
‘The RBA needs to keep inflation on a tight rein, otherwise it really could bolt away in 2024. A tough day, but let’s hope it is the last for a while now.’
The Reserve Bank’s new forecasts are being published with more detail on Friday when the quarterly statement on monetary policy for November is released.