RBA governor Philip Lowe forewarned another rate rise would be necessary after the latest inflation figures remained stubbornly high. And today, the central bank was true to his word, hiking by 25 basis points to see the new cash rate sit at 2.85%.
Lowe said inflation in Australia is too high, registering 7.3% over the year to September, which is its highest in more than three decades.
“A further increase is expected over the months ahead, with inflation now forecast to peak at around 8% later this year,” he said. “Inflation is then expected to decline next year. Medium-term inflation expectations remain well anchored. The Bank’s central forecast is for CPI inflation to be around 4.75% over 2023 and a little above 3% over 2024.”
Lowe said Australia was still experiencing solid economic growth and a boost in income, but said this would moderate in the coming year as the global economy slows.
Today’s decision means the cash rate is now at its highest level since April 2013.
Seven consecutive hikes mean mortgage holders are paying a lot more to the bank than they were at the beginning of the year.
An owner-occupier with a $500,000 debt has now seen monthly repayments raise by as much as $760. Capital city medians are largely higher than this though, so if you live in Sydney or Melbourne for example, you’ll be paying much more again.
So, is this it?
If you’re wondering if this will be the last rate hike, it depends who you ask.
Some of the big four bank economists predict it will reach as high as 3.85% next year, while others don’t think it will be as bad.
Then there’s b Invested founder and investment property expert Nathan Birch, who believes that rates must begin to come down next year based on trends he is seeing in futures market yield curve data.
Philip Lowe has repeatedly said the RBA is committed to getting inflation back to its target range. The issue there is that inflation data keeps coming in high.
“The Board expects to increase interest rates further over the period ahead,” Lowe said today. “The size and timing of future interest rate increases will be determined by incoming data and the outlook for inflation and the labour market. The Board (is determined) to return inflation to target and will do what is necessary to achieve that.”
How much more can we take?
RateCity expert Sally Tindall points out that Australians are already facing the highest annual rise in the cost of goods since 1990. Add increasing mortgage costs and it’s sure to reach boiling point for many households. And the most painful point is yet to come.
“Households should remember that while we’re six rate hikes in, many of them have only started paying the third or fourth hike,” she said.
Meanwhile SQM Research data has revealed a rise in distressed sales, which will become worse as rates keep rising.
Distressed listings, which usually are the result of forced sales due to owners being unable to make repayments, are a hallmark of property downturns. They were up by more than 7% over two months in both NSW and QLD.
“The new rise in distressed sales activity may indicate the rising interest rate environment is starting to bite,” SQM Research director Louis Christopher said.