RBA not done yet: rate rises ‘unlikely to stop at seven’

Seven interest rate rises in a row might not be enough as economists predict an eighth straight jump in December — and the uncertainty is affecting people’s confidence to make life decisions.

The Reserve Bank of Australia has ramped up interest rates for a seventh consecutive month, leaving young families with mortgages in the dark as to how they should budget for their futures.

Uma and Vidura Liyanage wish the Reserve Bank’s governor, Philip Lowe, would be a little bit clearer about his views. So do their friends.

They are likely to be disappointed. After he got burnt for saying it was “very likely” the cash rate would remain at 0.1 per cent until 2024, Mr Lowe is leaving everyone to guess about just how much more monetary policy tightening is to come.

The rate hike comes as the cost of living spirals upwards — headlined by mortgage repayments.

Mrs Liyanage said confusion has been caused by the “pace at which the cash rate has been increasing, and not knowing when it will stop”.

Kellyville homeowners Uma and Vidura Liyanage, with their dog Missy, says rate rises are affecting their decisions and those of their friends. Picture: Justin Lloyd

“Plus there is so little communication,” she said.

The Liyanages bought their home in 2020, when the rate was at rock-bottom.

RBA Governor Philip Lowe has made his next move on interest rates. Picture: NewsWire’s Monique Harmer

“We’ve enjoyed fairly low interest rates our whole property owning life but now that’s come to an end,” she said.

Mrs Liyanage said in the current climate, families were struggling with something as basic as planning a holiday.

“Something basic like planning a holiday, we need to know that is something we can foreseeably plan or afford.

“We have our whole lives ahead of us and the uncertainty makes it hard to plan. It’s not just the interest rate, yes our mortgage went up but our grocery bill, electricity.”

The seven interest rate rises in a row might not be enough to homeowners’ pain, as economists predict an eighth straight jump in December and a greater chance of another hike in February after the Reserve Bank lifted its inflation forecast yet again.

The RBA tightened monetary policy for a seventh consecutive month on Tuesday, increasing the benchmark cash rate by 0.25 percentage points to 2.85 per cent, as was expected. That is set to add about $70 to monthly repayments of a $500,000 mortgage.

A household with such a loan will be paying $750 more per instalment than they were before the RBA began its crusade against inflation in May.

Treasurer Jim Chalmers said it was “another difficult day for Australians who are already under the pump.

“Inflation is the number one challenge in our economy,” Mr Chalmers said.

Vidura and Uma Liyanage bought their North Kellyville home when interest rates were at rock bottom. Picture: Justin Lloyd

In announcing the latest rate increase, RBA Governor Philip Lowe also revealed the central bank now expects inflation to peak at about 8 per cent by year’s end, compared to its August forecast of 7.75 per cent.

Mr Lowe said “medium-term inflation expectations remain well anchored and it is important that this remains the case.”

However, in the next sentence of his statement came an increase to these expectations.

Inflation is now tipped to remain higher for longer, with the consumer price index likely to be average 4.75 per cent next year, versus a prior projection of 4.3 per cent. It is also expected to stay above the RBA’s target range of 2-3 per cent through 2024.

With the RBA ultra-keen to get inflation back into its comfort zone, RBC Capital Markets macro rates strategist Robert Thompson said “you could argue that opens the door to needing to hike in February.”

Economists at ANZ said there was now a risk that medium-term inflation expectations become “unanchored”. Even before the RBA’s upward revision on inflation, ANZ was anticipating rate increases in February and March.

Both RBC and ANZ tip a hike next month, as does AMP chief economist Shane Oliver, although he thinks that will be the last one for a while.

“By February there will be enough evidence that things are slowing,” Mr Oliver said. “But it’s a close call and the momentum is up on rates.”

Mr Thompson said the RBA was trying to strike a balance between getting inflation down quickly “without hitting growth too hard” or pushing unemployment too high.

Mr Lowe said economic growth is anticipated to be slower than previously thought – 1.5 per cent in 2023 and 2024, down from a prior expectation of 1.8 per cent next year and 1.7 per cent the year after.

As a consequence, unemployment is now forecast to rise above 4 per cent.

NAB was the first major bank to increase home loan rates, doing so by 25 basis points from November 11.

Originally published as RBA not done yet: rate rises ‘unlikely to stop at seven’