Aussies to handle massive rate hike today

The Reserve Bank is widely expected to raise interest rates again today, in a massive hike that will cost Aussies hundreds more per month.

The Reserve Bank is widely expected to raise interest rates again today, in another massive hike that will add hundreds of dollars to the average borrower’s monthly mortgage payments.

Most economists expect the RBA to announce another 50 basis point hike at its July afternoon meeting, which would bring the official target for the cash interest rate to 1.35 percent.

The third consecutive rise would follow another shock of 50 basis points in June – the largest increase since February 2002 – and 25 basis points in May.

The rise in May was the first since 2010, when the central bank raised the spot interest rate from the record emergency low of 0.1 percent to curb rising inflation.

For a typical owner-occupier with a $500,000 mortgage and 25 years to go, today’s increase will see their monthly repayments increase by $137, according to RateCity.

Their total increase to date from the May, June and July rate increases would be $333 per month.

For a borrower with a $1 million mortgage, today’s decision will add $273 to their monthly repayments, bringing their total increase since April to $665 per month.

“Australians may be staring down the course of the steepest RBA hikes since 1994,” said RateCity research director Sally Tindall.

Floating rate farmers should prepare for another 0.50 percentage point hike this month and possibly another double hike in August. This would be a bold move by the Reserve Bank, but not against the measures taken by other central banks to curb inflation.”

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Treasurer Jim Chalmers said the expected rate hike would only put further strain on household budgets.

“Across the board, interest rates are expected to rise again today,” Dr. Chalmers to ABC News.

“That means an even greater share of people’s family budgets will be consumed by mortgage payments, while at the same time they will have to make room for the essentials of life, whether it be fruit and vegetables and groceries, whether it be gasoline. . Prices.”

RBA Governor Philip Lowe has previously said an increase of 75 basis points was “not on the table” at the time, but “stepped steps” of 25 or 50 basis points were thought of.

The comments of Dr. Lowe seemed to be pouring cold water on suggestions that the official cash rate would hit 4 percent by 2022, prompting the RBA to announce at least one 0.75 percentage point increase.

But with consumer prices up 5.1 percent in the 12 months to the March quarter, he acknowledged that the RBA had only a “narrow road” to rein in runaway inflation without triggering an economic downturn in turn.

“There’s a path to lower inflation without hurting the economy too much, but it’s a narrow path,” Dr. Lowe at a UBS panel discussion in Zurich.

dr. Lowe told the US Chamber of Commerce in Australia last month that the RBA had a plan and was guided by relevant information and data.

“Higher interest rates worldwide will help create a more sustainable balance between the demand for goods and services and the ability of our economies to meet that demand,” he said.

“As we chart our way back to 2 to 3 percent inflation, Australians should be prepared for more rate hikes. We have decided to make a larger adjustment of 50 basis points based on the additional information indicating a further upward trend. revision suggests an already high inflation forecast.”

He added: “However, I want to emphasize that we are not on a predetermined path. How fast we raise interest rates and how far we have to go will be determined by the incoming data and the assessment of the inflation board – and labor market prospects.”

Former RBA board member John Edwards has previously predicted inflation will climb to 7 percent by the end of the year.

“It will be a few more years, I think, before inflation is back in the 2-3 percent range,” he said.

“It will gradually decrease in the coming years. That is why it is important that we map that road back there and people have confidence that we will do that.”

It comes after two of Australia’s four major banks raised their fixed mortgage rates last week in anticipation of the rate hike.

The Commonwealth Bank of Australia raised its rates by 1.4 percent last Thursday, while NAB increased its rates by up to 1.1 percent the following day.

Ms. Tindall said the cash rate is expected to increase 2.5 percentage points in less than a year, adding $685 to the monthly repayments for a borrower with a $500,000 loan.

“Governor Lowe may have poured cold water on suggestions that the out-of-pocket rate could rise to 4 percent by Christmas, but the RBA will probably still tear the band-aid off soon,” she said.

Borrowers should sit down and figure out what a 2.5 percentage point rate hike would do to their monthly repayments. If that number is not a good fit for them, now is the time to take action. Refinancing to a lower rate can help bring continued relief to the monthly budget and keep people afloat during what will likely be a tough time for some families feeling the heat.

In an interview with ABC’s 730 last month, Dr. Lowe reiterated his previous statements that interest rates would not rise before 2024, saying that “the economy did not evolve as we expected”.

“What would you say to people watching who feel disturbed for thinking, ‘Well, I’ve made loan decisions based on what was said last October and now it’s changed, so I’m feeling stressed, I’m worried about where it’s going’?” asked host Leigh Sales.

“I understand that people are making loan decisions based on our communications, and that people are taking out loans they might not have taken out otherwise,” replied Dr. lowe.

“I also point out that the economy is doing remarkably well. Unemployment is at its lowest level in 50 years, a larger proportion of the population has a job than ever before, households have built up very large financial buffers. In recent years, people have set aside an additional $250 billion — it’s a lot of money, and the savings rate is still high, and the number of people behind on their mortgages is actually decreasing, not increasing.”

The RBA will announce its decision at 2:30 p.m. AEST.

frank.chung@news.com.au

— with NCA NewsWire

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