For the fourth month in a row, the Reserve Bank of Australia (RBA) has raised interest rates as inflation is rampant.
At 2:30 p.m. at the RBA’s monthly meeting, it raised Australian interest rates by 50 basis points, or 0.5 percent.
The decision brought the cash rate of 1.35 percent to 1.85 percent, largely in line with economists’ forecasts.
This is the first time the RBA has raised rates for four months in a row since the introduction of the inflation target of two to three percent in 1990.
This follows last week’s rise in annual inflation, which reached 6.1 percent, the highest level in 21 years since 2001.
Tuesday’s rate hike means those who pay off the average $500,000 home loan will have to cough up an extra $140 per month.
And the August hike isn’t expected to be the last, with economists predicting interest rates could peak at two percent by the end of the year.
As soon as news of the rate hike broke, Treasurer Jim Chalmers weighed in and acknowledged it was a difficult time for Australian borrowers, saying the announcement would “sting”.
“It’s another tough day for Australian homeowners with mortgages,” he said.
“The independent Reserve Bank has just announced its decision to raise interest rates by another 0.5 percent, bringing the cash interest rate to 1.85 percent.
“Australians knew this was coming, but it won’t make it any easier for them to deal with.
This cycle of rate hikes started before the election in response to inflationary pressures that started to accelerate early this year.
“Average homeowners with an outstanding balance of $330,000 today will have to find about $90 more per month in repayments as a result of this decision, on top of about an additional $220 in repayments since early May.
“For Australians with a $500,000 mortgage, it’s about $140 extra per month, on top of the extra $335 they’ve had to find since early May.
“As I said, Mr Chairman, this decision comes as no surprise. It’s not a shock to anyone, but it will still sting.
“Families will now have to make tougher decisions about how to balance the household budget in the face of other pressures, such as higher food prices and higher electricity prices and the cost of other essentials.”
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‘Misleading’: asks bank boss to resign
Prior to the rate hike, there were mounting calls for the RBA board and its governor, Philip Lowe, to step down after a string of missteps.
Chief among these was the promise that interest rates would not rise until 2024, which one top economist said was “misleading” to borrowers.
Critics also pointed out that the rapid rate hikes could inadvertently lead to a recession, while at the same time inflation is rampant.
Warren Hogan, chief economist at both ANZ and Credit Suisse, said: The Daily Telegraph that the RBA has been guilty of some “pretty bad mistakes” in recent months.
The RBA cut the cash rate to 0.1 percent in late 2020 during the Covid-19 pandemic — the lowest it had ever been — and said during the pandemic it had no plans to increase cash rates until 2024.
When it raised the cash interest rate for the first time in May and every month thereafter, Mr Hogan said it “basically misled people”.
He also said Australia’s central bank had pursued risky strategies, including spending a lot of money on insurance and putting money into a bond program that had come to nothing.
Mr Hogan, who was also the former chief adviser to the federal treasury, said: “It is unforgivable. I think they should resign – the entire board.”
Mr Lowe “should have the character to step down,” added Mr Hogan.
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Mr Lowe said spot interest rates would remain at the lowest level of 0.1 percent until at least 2024, but the rapid rise in inflation this year – driven in part by Russia’s war in Ukraine and domestic supply chain problems – led to the monthly increases.
It comes at a time when the cost of living in Australia is deteriorating, leaving borrowers even more strapped for cash than usual.
In the last quarter, transport costs rose by 13.1 percent as the fuel price rose to record levels for the fourth consecutive quarter.
Meanwhile, grocery shopping is also causing hip pain, with Australians outraged to see heads of lettuce selling for $10 a pop and bell peppers for $15 a kilo.
Interest rates in Australia reached a record high of 17.5 percent in January 1990. Since then, she has averaged 3.93 percent.
Before this year, the last time the RBA raised interest rates was in 2010. Since then, it has only fallen.
As a result, more than a million home borrowers have never experienced a rise in mortgage rates because they bought a home after 2010.
The official cash rate has been at a record low of 0.1 percent since November 2020 in response to the Covid-19 pandemic through May 2022.
– with NCA NewsWire