RBA interest rate hike live updates: Cash rate increases by 25 basis points to 3.35%

Australians have received the inevitable news that interest rates are going up yet again, in a move that will cause pain for countless homeowners.

Australians have just been slugged with more mortgage pain after the Reserve Bank hiked interest rates by another 25 basis points.

On Tuesday afternoon at 2.30pm, the Reserve Bank of Australia brought up the cash rate from 3.1 per cent to 3.35 per cent, which was largely in line with economists’ predictions.

This marks the ninth time the interest rate has risen since May last year, with many Australian homeowners struggling to stay afloat.

That’s a significant leap from its pandemic low (and historic low) of just 0.1 per cent.

In all, the rate has jumped 325 basis points in just 279 days, rendering it the fastest and largest rate hiking cycle on record.

Analysis from comparison website Canstar found that for the average Australian on a $500,000 mortgage, their monthly repayments will now jump by $969 per month or $11,628 per year if banks pass on the rate.

For homeowners stuck with a $1 million home loan, they’ll be lumping out an extra $1,939 a month, which is $23,268 over the next 12 months.

It dashes any hopes of the RBA hitting pause on more rate hikes.

Some economists were hopeful that the worst may be yet behind us, but then the latest CPI report came out last month, destroying any chance of an easy time for Australian mortgage holders.

In January, the Australian Bureau of Statistics found the annual rate of inflation was at 7.8 per cent, marking the highest yearly increase since 1990.

In speaking of the decision, RBA governor Philip Lowe said bluntly in a statement along with the announcement: “Global inflation remains very high”.

Homeowners, brace yourselves. Picture: Brendon Thorne/Bloomberg via Getty Images

Mr Lowe hinted that this wouldn’t be the last rate rise of the year.

He acknowledged that inflation is “moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy.

“It will be some time, though, before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.”

He also warned of “uncertainty” to come and said the current inflation levels were worryingly below the RBA’s goal.

“The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments,” he said.

“There is uncertainty around the timing and extent of the expected slowdown in household spending....

“The Board’s priority is to return inflation to target.

“High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.

“The Board is seeking to return inflation to the two to three per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”

Homeowners have been tightening the belt the last eight months and there’s no sign of it letting up anytime soon. Picture: NCA Newswire / Gaye Gerard

It comes as earlier on Tuesday, Stephen Koukoulas, managing director of Market Economics, told Melbourne radio station 3AW that it is “too much, too late” for the RBA to salvage Australia’s dire economic outlook, even with the latest rate hike.

”We’re just part of the global phenomenon where inflation, even though it is starting to tilt lower, isn’t falling fast enough,” Mr Koukoulas said.

The risk, according to the economist, is that if Australia’s central bank keeps increasing the rates, by the time inflation gets under control, the economy will be incredibly weak and Australians will still be struggling.

“Up until 18 months ago we have had basically 25 years of very low inflation,” Mr Koukoulas explained.

But now homeowners across the country have endured eight consecutive rate hikes last year starting from May, despite originally being told the rate wouldn’t rise until 2024.

“There is a risk if they (the RBA) follow through with two more rate hikes once we get to the middle of this year, the wheels will have fallen off, the economy will be weak and we’ll be going ‘we did a bit too much too late’,” Mr Koukoulas added.

He’s not the only one warning Australians to brace for a grim year ahead.

Philip Lowe, governor of the Reserve Bank of Australia, has announced eight interest rate rises since May last year. Photographer: Brendon Thorne/Bloomberg via Getty Images

Deutsche Bank expects the rate will peak at 4.1 per cent all the way in August.

Chief economist of Deutsche Bank, Phil O’Donaghoe said last week that Australia’s central bank will hike up prices in February, March, May and August.

“After last week’s Consumer Price Index (CPI) and … also the fact that household spending looks like it’s been pretty resilient through Christmas and the start of the year,” Mr O’Donaghoe said.

“Put those two things together and I thought 3.35 per cent isn’t going to be enough.”

Australia’s biggest four banks have also weighed in and most don’t expect the Tuesday rate hike to be the last.

ANZ and Westpac both have forecast for the cash rate to peak in May once it reaches 3.85 per cent.

They expect two more rate rises after the February meeting to reach the terminal rate before Australians will get a reprieve.

NAB had a better prediction for struggling homeowners, forecasting that homeowners only have to endure two more months of rises.

The bank’s economists said by March, the interest rate will have peaked at 3.6 per cent.

The Commonwealth Bank had the most optimistic prediction of all, suggesting that interest rates could peak on Tuesday afternoon but then pause while the RBA reassessed and waited for more reports on inflation.

Originally published as RBA interest rate hike live updates: Cash rate increases by 25 basis points to 3.35%