More mortgage pain as RBA looks to lift rates at least two more times to 3.85pc

Newly released RBA board minutes detail how its forecasts of inflation only returning to target by 2025 factors in two more rate hikes to 3.85 per cent.

RBA governor Philip Lowe to keep lifting rates in a bid to bring down inflation. Picture: Brent Lewin/Getty Images

Newly released Reserve Bank board minutes detail how the central bank’s forecasts of inflation only returning to target by 2025 factors in two more rate hikes to 3.85 per cent – cementing the case for further pain ahead for mortgage holders.

The RBA board on February 7 jettisoned discussion of a pause in rate hikes at this month’s meeting, and the minutes highlighted a renewed urgency among board members to ensure inflation was not allowed to get out of hand.

“Members noted that the forecasts for output and inflation had been prepared on the technical assumption of the cash rate reaching around 3.75 per cent,” the minutes read, suggesting a further two quarter-point moves.

“Consistent with this, members agreed that further increases in interest rates are likely to be needed over the months ahead to ensure that inflation returns to target and that the current period of high inflation is only temporary.”

“In assessing how much further interest rates might need to increase, the board will continue to evaluate developments in the global economy, trends in household spending and unemployment, the evolution of labour costs and the price-setting behaviour of firms.”

Recognising that consumer price growth ended the year more strongly than expected, the RBA board considered whether to hike by 0.25 percentage points of 0.5ppts, but in a change from recent meetings did not contemplate not hiking at all at the February 7 meeting.

“The recent inflation data had suggested more breadth and persistence in inflation than had been expected and that strong demand was leading to price increases in some parts of the economy,” the minutes said.

“While inflation was expected to decline, there was a risk that it could persist at an uncomfortably high level, which would entail longer term costs.”

The board minutes reiterated the bank’s drive to keep the economy on an “even keel” as it takes the heat out of soaring consumer prices.

“The path here is a narrow one and there are risks in both directions. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” the minutes read.