The Reserve Bank of Australia (RBA) has made a historic move by raising the official cash rate for the ninth consecutive time, bringing the target to its highest level since September 2012, at 3.35%. The 0.25% increase at the RBA board meeting has caused average variable mortgage rates to exceed 6%. This increase will add an additional $114 to a $750,000 home loan repayment per month, resulting in a total increase of $1,362 for such a borrower since rates started rising in May of last year. At present, ANZ is the only big bank to pass on the RBA’s rate hike.
RBA governor Philip Lowe stated in the accompanying statement that “global inflation remains very high”. According to RateCity, additional monthly mortgage repayments could reach $1,058 for a typical $500,000 loan compared to pre-May 2022 levels if the RBA were to raise its cash rate by another 50 basis points to 3.85%. Both ANZ and Westpac were predicting a peak interest rate of 3.85% before the board’s verdict, and ANZ has announced that it will raise interest rates for its variable home loan and some savings customers. ANZ’s variable interest rates across home loans will increase by 0.25% starting February 17th.
CBA head of Australian economics, Gareth Aird, stated that two further 25 basis point interest rate hikes would significantly lower the probability of a soft landing for the economy and put many home borrowers’ budgets under considerable strain over the coming year. ANZ is sticking to its earlier forecast of a 3.85% peak cash rate. Approximately 800,000 mortgage holders are expected to shift from fixed to variable rates, which could reach 6% or more, in 2023, according to Tim Lawless, head of research at CoreLogic.
The RBA is not anticipating a major increase in the jobless rate, which was hovering near 50-year lows of 3.5% in December and is expected to edge up to 3.75% by the end of the year and further to 4.5% by mid-2025.
The Board anticipates that further interest rate increases will be necessary in the coming months to bring inflation back to target and make this period of high inflation temporary. The Board will closely monitor developments in the global economy, household spending trends, the outlook for inflation and the labor market, and will do what is necessary to return inflation to target.