Reserve Bank of Australia hikes interest rates yet again in November meeting

The Reserve Bank of Australia just announced its latest decision and it’s something no Aussie wants to hear right now.

Australians have been hit with the seventh consecutive month of interest rate rises after the Reserve Bank of Australia (RBA) made another unwelcome announcement on Tuesday afternoon.

At 2.30pm, the RBA lifted interest rates by 25 basis points. That brought the cash rate from 2.6 per cent to 2.85 per cent.

The RBA has increased rates every month since May this year in a bid to slow down spiralling inflation in the country.

The latest inflation report found that Australia’s consumer price index has risen by 7.3 per cent in the past year.

The rate rise was largely in line with economists’ expectations, although Westpac thought the rise was going to be higher.

Westpac economists forecast a 50 basis point rise while CBA, NAB and ANZ experts all made a slightly more conservative estimate of 25 basis points.

RBA Governor Philip Lowe said they had decided to up the rate by 25 basis points because inflation is forecast to hit eight per cent by the end of the year.

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year,” he wrote in a statement.

“The Bank’s central forecast is for CPI inflation to be around 4¾ per cent over 2023 and a little above 3 per cent over 2024.”

He warned this wouldn’t be the last interest rate hike.

“The Board has increased interest rates materially since May,” Mr Lower continued.

“This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target.

“The Board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour.”

How can inflation cause rising interest rates? Read Compare Money's guide >

‘Bitter pill to swallow’

Graham Cooke, head of consumer research at Finder, acknowledged these were trying times.

“This seventh consecutive rate hike will be a bitter pill to swallow for many,” he said.

“The current series of rate hikes has added almost $11,000 to the annual cost of a $500,000 mortgage.”

Although Tuesday’s announcement will add an extra several hundred onto monthly home loan repayments, it will lead to thousands of wasted dollars in the long term.

Compare the Market found that a $500,000 mortgage will have to pay an extra $76 per month after Tuesday’s increase.

However, over the life of the loan, that amounts to an extra $27,000 being back to the bank in interest.

In a similar vein, an Aussie on a $1 million loan will have to fork out a further $152 to keep their loan in check.

But that adds up to an eye-watering $54,000 over the course of the loan.

The RBA is expected to make another devastating decision for most Australians. Picture: Lisa Maree Williams/Getty Images

And the worst is yet to come.

Experts have warned that this is not yet the peak – or terminal – cash rate, and that it could be months before the RBA’s hikes start to curb inflation.

One expert even warned that rates wouldn’t stop going up until mid next year when they hit over four per cent.

Dr Tomasz Wozniak, from the University of Melbourne, thinks that inflation won’t start to be brought under control until the interest rate hits more than four per cent.

That’s almost double where the rate currently sits, and an estimated one in four people are already struggling to pay their mortgage, according to data from comparison website Finder.

“The forecasts from the bond-yield curve models I estimated consistently indicate an increase in the value of the cash rate until mid-2023, after which levelling off should follow,” Dr Wozniak said in a note.

“By that time, the cash rate will nearly surely be higher than 3.6 per cent, will most likely reach 4 per cent, and is unlikely to exceed 4.4 per cent. This would mean that the interest rates might get to the levels from early 2012.”

Governor of the Reserve Bank of Australia Phillip Lowe assured Australians last year that the interest rate wouldn’t rise until 2024. Picture: Joel Carrett

Westpac’s chief economist, Bill Evans, warned that Australians would have to keep enduring rising interest rates until March next year.

“We now expect … for a terminal rate (peak rate) of 3.85 per cent by March, revised up from 3.6 per cent,” Mr Evans said.

Likewise, NAB predicts that the cash rate will hit 3.1 per cent by the end of the year. However, it expects the peak cash rate to keep rising until March 2023, though guessed a slightly lower rate of 3.6 per cent.

ANZ thinks the interest rate will peak in May next year at 3.85 per cent.

The Commonwealth of Australia has the best prediction for cash-strapped Australians, forecasting a peak as soon as next month, in December.

CBA head of Australian economics, Gareth Aird, said the rate would hit 3.10 per cent in December and that it would decline after that.

That’s up from CBA’s original estimate of 2.85 per cent being the absolute peak.

Originally published as Reserve Bank of Australia hikes interest rates yet again in November meeting