RBA boss Phillip Lowe shares ominous warning as Australia’s official cash rate rises by 0.50 per cent

Aussie homeowners are feeling the heat after the Reserve Bank hiked the cash rate again - and there’s more bad news to come.

Australians are being warned inflation is not going to get better in the coming months as the central bank hiked the cash rate for the fifth consecutive month.

The Reserve Bank of Australia announced a 0.50 per cent rate rise after the board held its monthly meeting on Tuesday afternoon, as it attempts to bring inflation under control.

Banks have been quick to follow the RBA’s lead, increasing interest rates in line with the rise to the cash rate, and this month is expected to be no different.

Reserve Bank governor Philip Lowe warned inflation in Australia is “the highest it has been since the early 1990s and is expected to increase further over the months ahead”, in his statement.

Australian Reserve Bank Governor Philip Lowe has warned inflation is set to get worse. Picture: James Brickwood

“Global factors explain much of the increase in inflation, but domestic factors are also playing a role,” Mr Lowe said.

“There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy.”

Mr Lowe said the RBA is committed to returning inflation to the 2-3 per cent range over time, while it is expected to peak later this year.

The bank’s central forecast for inflation is expected to be around 7.75 per cent over this year.

However, it is expected to drop to a little above 4 per cent over 2023 and around 3 per cent in 2024.

Mr Lowe said the increase in interest rates would help bring inflation back to target and “create a more sustainable balance of demand and supply in the Australian economy”.

“The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path,” he said.

Following Tuesday’s announcement, the cash rate is now at 2.35 per cent – the first time it’s been above 2 per cent since April 2016 and its highest level since December 2014.

For the average variable borrower, this could mean monthly repayments will rise by $144 following the jump in interest rates, with the average repayment on an $800,000 mortgage expected to be more than $4300 per month, an increase of $1000 from April.

The interest rates has increased by 0.5 per cent on Tuesday. Picture: NCA Newswire /Gaye Gerard.

The nation’s cash rate had already been dramatically lifted to 1.85 per cent in four successive hikes since May, following the historic low of 0.10 it had been dropped to during the Covid-19 pandemic.

Earlier on Tuesday, Rate City research director Sally Tindall said average homeowners may now be paying an interest rate that is more than 5 per cent.

“That’s a huge amount of extra money to stump up month after month,” Ms Tindall said.

“The fastest rise to the cash rate since 1994 has seen property prices drop, as buyers’ borrowing capacity is shredded with every RBA hike, spooking owner-occupiers and investors alike.”

Rate City research director Sally Tindall said average homeowners will struggle. Picture: Tim Hunter.

Mr Lowe is expected to give hints at further rate hikes during a speech on economic outlook and monetary policy at the Anika Foundation on Thursday.

All of the big four banks – ANZ, the Commonwealth Bank of Australia, NAB and Westpac – correctly predicted the RBA would hike rates by 0.5 per cent.

New research from mortgage broker Aussie released on Tuesday found mortgage owners are not equipped or educated enough on how to manage their home loans in the face of the increased rates.

According to the data, 65 per cent of Australian homeowners say they may default on their loans as a result of the increased cash rate.

The research, conducted to understand how the increased interest rates are affecting Australia’s mortgage holders, has revealed 75 per cent of homeowners are unsure how the rate increase will impact their household budget, leaving them searching for clarity.

Meanwhile, three in ten mortgage holders did not consider the cash rate would increase at all when budgeting for a home loan.

State Broking Manager at Aussie, Karen Sorrenti, said it is a “stressful time” for many Australians.

“Our latest research shows almost one in five Australians with mortgages are dealing with ‘significant mortgage stress’, and a further four in five confirmed the rising cash rate and upward cost of living is placing unwanted tension on their household,” she said.