Reserve Bank of Australia expected to raise interest rates by 0.5 per cent again
Ahead of Australia’s interest rates hitting their highest levels since 2014, here is everything you need to know about the expected increase.
The Reserve Bank of Australia is expected to raise interest rates by 0.5 per cent on Tuesday, the fifth consecutive increase in the country’s cash rate.
The widely predicted increase to 2.35 per cent would mean interest rates would be at their highest level since December 2014 as the RBA attempts to battle soaring inflation.
Before the RBA’s board meeting on Tuesday, here is everything you need to know about what another 50 basis point rise will mean.
What does this mean:
Australians could be set for more interest pain if the RBA goes through with a 0.5 per cent increase as expected.
Rate City has warned the average variable borrower could see their monthly repayments rise by $144 if the banks pass on the hike in full to customers
“If this happens (a 0.5 per cent increase), the average owner-occupier with a variable mortgage could be paying an interest rate that’s over 5 per cent,” Rate City research director Sally Tindall said.
“As a result, the average borrower would see their monthly repayments increase, in total, by more than $600. That’s a huge amount of extra money to stump up month after month.
“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.
“However, other parts of the economy have continued to defy the rate hikes. Retail sales in July chalked up another rise, while unemployment dropped to 3.4 per cent and household deposits hit another record high.”
Economists will also keep an eye on RBA governor Philip Lowe’s speech on economic outlook and monetary policy at the Anika Foundation on Thursday.
He is expected to give some indication on further rate hikes.
What are the big four banks saying?
The Commonwealth Bank of Australia (CBA) ANZ, NAB and Westpac are all in agreement that the RBA will hike rates by 0.5 per cent on Tuesday.
But there is some difference over what will come next, with ANZ forecasting that there could be another 50 basis point hike in October.
“We don’t think Tuesday’s 50bp hike will be the last such move by the RBA,” ANZ head of Australian economics David Plank said.
“Given the strength of inflationary pressures, we think the RBA will want to take the cash rate some way above what it thinks is the bottom of the neutral range.
“Given our expectations, we think a 50bp rate hike in October is more likely than 25bp.”
But NAB group chief economist Alan Oster said the RBA could lower interest rate increases down to 0.25 per cent in October.
“Maybe we’ll move back to more normal increases like 0.25 per cent after next week’s 50 and a couple of 25s, and then sit and watch for a while to see what happens,” he said.
Westpac chief economist Bill Evans also suggested that 0.5 per cent rate hikes could be over.
“Raising the cash rate by 50 basis points will move the cash rate into the ‘neutral zone’. In recent speeches the governor and deputy governor assessed “neutral” is at least 2.5 per cent,” he said.
“Having quickly moved policy into that neutral zone (225 basis points in four months – five meetings) we expect the board will decide to slow the pace of increases to 25 basis points from the October meeting.”
CBA head of Australian economics Gareth Aird has also stated that he anticipates Tuesday will be the last 50 basis point increase.
What’s Canberra saying:
The Greens made a bold move on Sunday when they called out the RBA. Greens economy spokesman Nick McKim said interest rate increases should be put on hold until after the October budget.
He also said Australians had been “misled” by Mr Lowe when he said rates were unlikely to rise until 2024.
“He can’t then turn around and smash homeowners and renters with rate increases to deal with inflation that they are not causing while their wages are going backwards in real terms,” he said in a statement.
“This is not the 1970s. We have a profit-price spiral, not a wage-price spiral.
“Instead of jawboning down wages, (RBA governor) Philip Lowe should be jawboning down corporate profits and heaping pressure on the government to do something about (inflation).”
But Anthony Albanese has expressed confidence in the RBA and Mr Lowe.
“I do have confidence in the RBA and I think it's appropriate that the government allow the RBA to do its job,” the Prime Minister said on Monday.
“My message is the same, of course they (the RBA) have to bare in mind … the impact on people from decisions that are made.
“Of course I’m concerned about the cost of living because I know so many Australians are doing it tough out there.”
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