Borrowers narrowly escaped a bigger rate hike in May and may not be so lucky next month

Minutes from the latest Reserve Bank meeting show that borrowers may have narrowly escaped a bigger rate hike and should brace themselves for the chance of a super-big move in June.

Most economists had expected the RBA to hike rates by 15 basis points at its May meeting, while a few had tipped a 40 basis point rate hike and a few expected it to wait until June for the first move.

However, the Reserve Bank caught everyone by surprise by raising interest rates by 25 basis points.

It seems that either no movement or a 15 basis point increase was barely on the agenda at the May 3 meeting.

“Members at this meeting considered three options for the size of the rate hike: raising the spot rate by 15 basis points, 25 basis points or 40 basis points,” the minutes said.

Reserve Bank governor Philip Lowe said more rate hikes are on the way.ABC News: John Gunn

“Members agreed that raising the spot rate by 15 basis points was not the preferred option as the policy was very stimulative and it was very likely that further rate hikes would be needed.

“An increase of 15 basis points would also violate the historical practice of changing the spot rate in increments of at least 25 basis points.r

“However, members agreed that the preferred option was 25 basis points. A move of this magnitude would help signal that governance is now returning to normal operating procedures after the extraordinary period of the pandemic.”

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