RBA hikes interest rates by 50 basis points, bringing cash rate to 2.35%

Even more cash pain is headed for Australians’ wallets after the central bank hiked interest rates for the fifth month in a row.

Aussie homeowners have been slugged with a fifth interest rate rise in a row, which could cost households an extra $1000 a month.

The Reserve Bank (RBA) met on Tuesday afternoon for its September meeting where the board raised the cash rate by another 50 basis points.

That takes the cash rate from 1.85 per cent to 2.35 per cent.

Now, the average repayment on a $800,000 mortgage is set soar to more than $4300 per month, an increase of $1000 from April, when the cash rate was at a record low of 0.1 per cent.

For the past four consecutive months, Australia’s central bank has increased the interest rate and three of those hikes, in June, July and August, have been by a whopping 50 basis points.

And with the RBA passing another 0.5 per cent increase for September on Tuesday, Australia is now caught in the throes of its most rapid tightening cycle for more than two decades.

Shane Oliver, chief economist at AMP, told news.com.au: “They’ve done five hikes in a row, four consecutive 0.5 per cent increases, it’s the fastest tightening cycle since 1994.”

On top of that, Australia’s 2.35 per cent cash rate is the highest level it’s been since 2014.

Mr Oliver has predicted that the cash rate will peak at 2.6 per cent by the end of the year.

By next year, he thinks there will be several rate cuts after inflation is brought under control.

However, he warned that others believe the peak will hit 3.6 per cent in late 2023.

Interest rates in Australia reached an all time high of 17.5 per cent in January 1990. Since then, they have averaged 3.93 per cent.

Before this year, the last time the RBA hiked up rates was in 2010. It has only been going down ever since.

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Philip Lowe, Governor of the Reserve Bank of Australia, has more grim news for Australian mortgage holders. Picture: Arsineh Houspian

PropTrack senior economist Eleanor Creagh said there were already signs of the interest rates impacting Australia’s property market and that Tuesday’s announcement will just reinforce those changes.

“The fastest rise to the cash rate since 1994 has seen home prices falling across the country, with prices nationally now sitting 2.7 per cent below their March peak,” she said.

The housing markets in Sydney and Melbourne are suffering. In fact, Sydney’s property prices are now sitting lower than they were in August last year.

“Today’s rate hike will further increase borrowing costs and reduce maximum borrowing capacities, pushing property prices further down,” Ms Creagh continued.

“The level of interest rates will be a key factor of housing market conditions and the pace and depth of home price falls in the period ahead.”

‘Flying blind’

Earlier, a leading economist has issued a grim warning that the RBA is “flying blind” and that rapid rate increases might not be the best long term strategy.

The Commonwealth Bank’s Head of Economics Gareth Aird warned that economic data had not yet caught up to rate hikes and that it could push Australians beyond their limits.

Commonwealth Bank Head of Australian Economics Gareth Aird had some choice words about the RBA’s decision.

“The rapid pace at which the RBA has tightened policy, overlaid with a full appreciation of the lags between rate hikes and the cash flow impact on a home borrower, means there‘s a degree to which the RBA board is flying blind,” he told the ABC.

“It has simply been too early for the spending data to pick up the impact of the already delivered rate hikes.”

The RBA lowered the cash rate to 0.1 per cent at the end of 2020 amid the Covid-19 pandemic – the lowest it had ever been – and throughout the pandemic said they didn’t plan on raising the cash rates until 2024.

However, with inflation and cost of living on the rise, they hit mortgage holders with several rate rises.

Philip Lowe, Governor of the Reserve Bank of Australia, initially said rates wouldn’t rise until 2024. Picture: Arsineh Houspian

Mr Oliver said despite the cost of living crisis, economic data had not yet weakened, leaving the RBA with little choice but to keep trying to curb inflation with interest rate hikes.

“Economic data on retail and jobs has remained pretty strong,” he said.

He also pointed out there was usually a lag of several months for the economic data to reflect with interest rates.

The Reserve Bank of Australia is making another big decision about interest rates tomorrow. Picture: NCA NewsWire / Damian Shaw

Australians with a $500,000 mortgage are paying on average an extra $475 per month compared to when interest rates were at their record lows.

It comes as Australia’s cost of living crisis is worsening, making borrowers even more cash-strapped than usual.

In the last quarter, transport costs rose 13.1 per cent as the price of fuel rose to record levels for the fourth quarter in a row.

Meanwhile, grocery shopping is also causing hip pocket pain, with Australians outraged to find lettuce heads selling for $10 a pop and capsicums marked at $15 for a kilo.