RBA raises interest rates for the second month in a row

The Reserve Bank of Australia has raised interest rates for the second time in 35 days and it will continue to rise until the end of the year.

The Reserve Bank of Australia has hiked the official cash rate for the second month in a row.

At the RBA’s June meeting this afternoon, the Board decided to lift the official cash rate by a mammoth 50 basis points, to 0.85 per cent.

However, with inflation continuing to surge, Aussies can expect the cash rate to creep further northward after each RBA meeting between now and Christmas, with bank governor Philip Lowe signalling growth would steadily continue after last month’s historic meeting, which saw the cash rate shift from 0.1 to 0.25 – the first raise in over a decade.

“Over time, it is not unreasonable to expect interest rates would get to 2.5 per cent,” Mr Lowe said at the time.

“How quickly we get there, and if we do get there, will be determined by how events unfold.”

However, with a rapidly worsening cost of living crisis, compounded by external market “shocks” caused by the ongoing war in Ukraine and China’s belligerent lockdowns, events appear to be unfolding in the worst possible way for the gatekeepers in Martin Place.

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The RBA is tipped to raise interest rates as high as 2.5 per cent over the next 12 months. Picture: Supplied

“If rates do continue to rise above that 2.5 per cent figure the RBA will be in a very uncomfortable position,” Paul Ryan, economist at PropTrack told news.com.au.

“Inflation has been driven by those supply shock factors – part of the reason the RBA brought forward their interest rate increases in the first place is that they had to act in the face of the inflation.”

Mr Ryan said given cost of living pressures were being influenced by external factors, the RBA wouldn’t have the same level of control over how high they could cap the cash rate, tipping them to take a “wait and see” approach.

“One of the key ways that inflation targeting works is through expectation – if people view the RBA as not being able to rein in inflation then it becomes powerless,” he said.

Mr Ryan also warned that mortgage holders – the main subset of people impacted by rising cash rates – should have to brace for repayments of up to $1000 extra per month (for a $1 million home) if rates rose above 2 per cent and banks opted to pass on the rate hike to customers.

Mortgage repayments are tipped to skyrocket as the RBA scrambles to contain inflation. Picture: Luis Enrique Ascui/NCA NewsWire

AMP Capital chief economist Shane Oliver previously told news.com.au that history would suggest homeowners should tighten their belts.

“Whatever the RBA does, the bank’s standard variable amounts will likely go up by the same amount”, Mr Oliver said. “I think within a few days most customers will be getting a letter from their bank about a rate rise.”

Originally published as RBA raises interest rates for the second month in a row