RBA governor warns that interest rate will continue to rise for many more months

The boss of Australia’s central bank has a grim message to Aussies already struggling to pay their mortgages.

The boss of Australia’s central bank has issued a sombre warning about how the worst is still yet to come for interest rates and inflation.

Australians are already feeling the financial pain after the Reserve Bank (RBA) announced another interest rate rise on Tuesday afternoon, lifting interest rates by 25 basis points.

That brought the cash rate from 2.6 per cent to 2.85 per cent, taking the rate to a nine-year high.

It also marked the seventh consecutive month that Australians had to endure a an increase.

NAB was the first major bank to pass on the rate rise to its customers.

Within minutes of delivering the bad news, RBA Governor Philip Lowe said that the future also appeared fraught as he had no choice but to keep lifting rates, with inflation showing no signs of abating.

Mr Lowe said he 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, in a sign that months of interest rates have not yet curbed inflation woes.

“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.

And Mr Lowe warned things weren’t going to get better, either.

“The Bank’s central forecast is for CPI inflation to be around 4.75 per cent over 2023 and a little above 3 per cent over 2024,” he said, then indicated that this wouldn’t be the last interest rate hike.

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

Philip Lowe has issued a grim warning. Picture: NewsWire / Monique Harmer

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 actually make any difference against 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 significantly higher than 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.”

Australia’s big four banks issued more conservative estimates about the peak, but there was a general consensus among everyone – interest rates will continue to rise for the next several months.

ANZ forecast that the rate won’t peak until May next year, when it would sit at 3.85 per cent.

Westpac thought that figure would also be the peak but thought it would come much sooner, by March.

Likewise, NAB predicts that the cash rate will keep rising until March 2023, though guessed a slightly lower rate of 3.6 per cent as the peak.

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 RBA governor warns that interest rate will continue to rise for many more months