RBA’s tenth consecutive rate hike could spell relief for borrowers

There’s a coded message of hope buried in the last paragraph of Reserve Bank of Australia Governor Philip Lowe’s statement after the RBA hiked rates for a tenth straight month.

Just one more hike – that’s the coded message of hope buried in the last paragraph of Reserve Bank of Australia Governor Philip Lowe’s statement on its latest 0.25 per cent interest rate increase.

In a potential godsend for borrowers who have now endured an unprecedented tenth tightening on the trot, Mr Lowe shifted away from speaking about future rate action in the plural.

In revealing February’s quarter-point rise, the money mandarin had said: “The board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”

But on Tuesday he remarked: “The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.”

Leading economists – who hang on Mr Lowe’s every word – suggested the new wording was significant.

Philip Lowe, governor of the Reserve Bank of Australia. Picture: Mark Graham

“One and done,” said Betashares chief economist David Bassanese.

The RBA was likely to raise by another 25 basis points in April then pause for at least three months with a view to hiking again after that if necessary, Mr Bassanese said.

“But by then there will be enough signs of a slowing,” he said.

Come Melbourne Cup Day in November, a cut will be on the cards, Mr Bassanese added.

The Australian dollar fell by nearly half a US cent immediately after Mr Lowe released his statement, suggesting currency traders also took the Governor’s comments as an indicator that the interest rate peak will be lower than previously expected.

Like Mr Bassanese, Moody’s Analytics economist Illiana Jain said an April increase would be the last.

Betashares chief economist David Bassanese. Picture: Supplied

“Provided incoming data falls into line with forecasts, this is likely to mark the end of the tightening cycle at 3.85 per cent,” Ms Jain said.

The central bank’ latest 0.25 per cent hike takes the benchmark cash rate to 3.6 per cent. It was 0.1 per cent in April 2022.

The rise was not a surprise, with 27 out of 27 economists surveyed by Bloomberg tipping a quarter-point jump.

If passed on by lenders, the increase will add $77 to monthly repayments of a $500,000 loan and twice that for $1 million of borrowing.

Treasurer Jim Chalmers said: “This will make life harder for many Australians who are already under the pump.

“The cumulative impact of those on someone for every half a million dollars owed now faces about $1000 a month more in interest payments,” Mr Chalmers said.

The Treasurer noted that Australian households spent about $20 billion on mortgage interest payments in the last quarter of 2022 versus $11bn in the same period a year earlier.

Mr Lowe said in his latest statement that “inflation is expected to decline this year due to both global factors and slower growth in domestic demand”.

The RBA is raising rates in a bid to bring inflation down from about eight per cent to its target range of two to three per cent.

On its website, the RBA says it has such a target because if inflation is too high, workers would seek larger wage increases to cover a reduction in their purchasing power. That would lead employers to raise their own prices “and/or reduce the number of workers they employ.”

Mr Lowe has said that if inflation was to remain elevated, 500,000 Australians could lose their jobs, doubling unemployment.

Originally published as RBA’s tenth consecutive rate hike could spell relief for borrowers