RBA raises official interest rates by 0.5 per cent
Queenslanders with a mortgage will be forking out almost $500 a month more than they were in May to make repayments, after that latest cash rate rise with more hikes predicted to be on the way. This is what you need to know.
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Queenslanders with a mortgage will be forking out almost $500 a month more than they were in May to make repayments, after that latest cash rate rise with more hikes predicted to be on the way.
The Reserve Bank of Australia on Tuesday raised the nation’s benchmark interest rate by another 0.5 of a percentage point.
It is the fourth increase since May and elevates the cash rate to 1.85 per cent, compared with 0.1 per cent in April.
Treasurer Jim Chalmers said while the increase was not a surprise, homeowners would still feel the “sting”.
“Australians knew this was coming, but it won’t make it any easier for them to handle,” Dr Chalmers said.
For a Queenslander with the average mortgage of $516,688, with a variable rate of 3.84 per cent, Tuesday’s 0.5 per cent interest rate rise will mean they pay an extra $143 a month.
But they will be paying $470 more a month when compared with May, when the average variable rate mortgage was 2.64 per cent.
Interest rates set by the Reserve Bank of Australia have risen 1.7 per cent since the first of a series of increases in May, rising from a record low of just 0.1 per cent.
The RBA is seeking to tackle skyrocketing inflation, which is expected to reach almost 8 per cent by the end of the year.
Gold Coast couple Stephanie Ede and Jake Thompson said that they aren’t overly worried about Tuesday’s rate rise, considering that they already pay more than their minimum mortgage repayments.
The couple bought their Surfers Paradise apartment in January this year – starting on a variable rate of 2.29 per cent.
“The rates rise is obviously going to affect us, with the rise of the mortgage and everything in general like petrol, groceries and cost of living,” Ms Ede said.
“We are just lucky and grateful that we have both incomes to help us.”
Mr Thompson said that the interest rates had been low for so long that he expected a rise.
“Hopefully, it just plateaus at the end of the year,” Mr Thompson said.
“We’re just going to cut down more on groceries and be more sensible with the way we spend our money,” he said.
As measured by the Australian Bureau of Statistics’ Consumer Price Index, inflation was up by 6.1 per cent in the year to the end of June.
The federal Treasury last week said that it expected the CPI to hit 7.75 per cent by Christmas.
The RBA’s preferred measure of inflation, the CPI “trimmed mean”, rose by 4.9 per cent over the year through June.
The RBA wants the trimmed mean to be between 2-3 per cent.
The current inflation surge has been mainly driven by supply shortages.
Causes of those shortages include the war in Ukraine, Covid lockdowns in China and flooding in eastern Australia. Strengthening demand is also an increasingly significant factor behind the inflation breakout.
In a statement announcing the latest increase, RBA Governor Philip Lowe said that the board placed a high priority on the return of inflation to the 2-3 per cent range over time, while managing to keep the economy on an even keel.
“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,” he said.
Mr Lowe revealed that the RBA’s forecast for the CPI over 2022 was now the same as the Treasury’s, at 7.75 per cent, then “a little above 4 per cent over 2023 and around 3 per cent over 2024.”
The bank expects economic growth of 3.25 per cent this year, which again is similar to the Treasury. The RBA believes the jobless rate will stay low, and be about 4 per cent at the end of 2024.
Mr Lowe indicated that more rate rises were on the way.
“The board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a preset path,” he said.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market,” Mr Lowe said.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” he said.
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