Australia

Reserve Bank hikes rates for eighth month in a row to a 10-year high of 3.1 per cent

Aussie borrowers hit by record EIGHTH rate hike in a row as homeowners suffer biggest hike EVER in a single year – here’s how high they are expected to go

  • The Reserve Bank of Australia raised interest rates for the eighth consecutive month
  • This has pushed the cash rate to a 10-year high of 3.1 percent, up from 2.85 percent
  • Borrowers have endured the toughest rate hikes since target cash rates began in 1990

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The Reserve Bank raised interest rates for a record eighth straight month to their highest level in a decade – signaling more pain was to come.

Governor Philip Lowe delivered the bad news for home borrowers on Tuesday afternoon, pushing cash rates to a new 10-year high of 3.1 percent, up from a nine-year high of 2.85 percent.

This means that a borrower with an average $600,000 mortgage will see their monthly payments increase by another $91 to $3,236, with Christmas just three weeks away.

The eighth consecutive monthly increase is the highest in a row since the Reserve Bank began publishing a target amount for cash in 1990 — adding $930 to an average borrower’s monthly payments since May.

Dr. Lowe said this would be far from the last hike, with Westpac and ANZ both expecting three more rate hikes by May.

The RBA forecasts inflation will hit a new 32-year high of 8 percent by New Year’s Eve as Australia enters a “price-wage spiral.”

“The Board remains resolute in its determination to bring inflation back to target and will do whatever is necessary to achieve that,” Dr Lowe said.

The Reserve Bank Has Raised Interest Rates For A Record Eight Straight Month To Their Highest Level In A Decade

The Reserve Bank has raised interest rates for a record eight straight month to their highest level in a decade

It also marks the most severe RBA tightening in a calendar year in records stretching back 32 years, surpassing the sharp rate hikes of 1994.

This despite the fact that Dr. Lowe last year suggested interest rates would remain at a record low of 0.1 percent through 2024, but that claim was made before Russia’s invasion of Ukraine in February pushed global crude prices up.

Inflation in the year to September rose 7.3 percent – the fastest increase in 32 years.

While it moderated to 6.9 percent in October, that was a monthly figure with less data than the September quarter figures.

The Reserve Bank still expects headline inflation — also known as the consumer price index — to peak at 8 percent this year for the first time since 1990.

This is more than double the target of two to three percent of the RBA.

The 18-month era of the record low cash interest rate of 0.1 percent ended in May with an interest rate hike of 0.25 percentage point – the first increase since November 2010.

Governor Philip Lowe Delivered The Bad News For Home Borrowers On Tuesday Afternoon, Taking Cash Rates To A New 10-Year High Of 3.1 Percent, Up From A Nine-Year High Of 2.85 Percent

Governor Philip Lowe Delivered The Bad News For Home Borrowers On Tuesday Afternoon, Taking Cash Rates To A New 10-Year High Of 3.1 Percent, Up From A Nine-Year High Of 2.85 Percent

Governor Philip Lowe delivered the bad news for home borrowers on Tuesday afternoon, taking cash rates to a new 10-year high of 3.1 percent, up from a nine-year high of 2.85 percent

That was followed by four supersized rate hikes of 0.5 percentage points in June, July, August and September, and two hikes of 0.25 percentage points in October and November.

The banks must assess a borrower’s ability to deal with a three percentage point increase in variable mortgage rates, but the RBA has raised rates by 300 basis points in eight consecutive months.

Westpac and ANZ expect cash rates to hit an 11-year high of 3.85 percent by May, which would mean three more rate hikes of 0.25 percentage points.

The wage price index in the year to September grew 3.1 percent — the fastest rate since 2013 and Dr. Lowe expects wage growth to accelerate, with unemployment hitting a 48-year low of 3.4 percent in October.

“Wage growth continues to pick up after the low levels of recent years and further increases are expected due to the tight labor market and higher inflation,” he said.

“Given the importance of avoiding a price-wage spiral, the board will continue to closely monitor both the development of wage costs and the pricing behavior of companies in the coming period.”

What a 0.25 percentage point rate hike means for borrowers

$500,000: $76 up to $2,697 from $2,621

$600,000: $91 up to $3,236 from $3,145

$700,000: $106 up to $3,775 from $3,669

$800,000: $122 up to $4,315 from $4,193

$900,000: $137 up to $4,854 from $4,717

$1,000,000: $152 up to $5,393 from $5,241

Monthly mortgage payment rises based on Commonwealth Bank floating rate rising 0.25 percentage point to 5.04 percent from 4.79 percent to reflect Reserve Bank of Australia cash rate rising to 3.1 percent of 2.85 percent in December 2022

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Jacky

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