Cash rate hits decade-high 3.10% after RBA hikes rates again
Homeowners with a mortgage will likely be hit with higher loan repayments just in time for Christmas following the Reserve Bank of Australia's (RBA) decision to increase interest rates by a further 25 basis points this afternoon.
The official cash rate now sits at 3.10% as a result of an eighth consecutive hike from the central bank - the highest it's been since back in November 2012.
There had been speculation in the lead up to today's decision that the RBA could stay its hand after a slight retreat in the rate of annual inflation growth last week. However, that was not the case, with Reserve Bank governor Philip Lowe once again emphasising the importance of continuing to rein in inflation in his post-meeting statement.
"Inflation in Australia is too high, at 6.9% over the year to October. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.
"Returning inflation to target requires a more sustainable balance between demand and supply.
"The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour.
"The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board's assessment of the outlook for inflation and the labour market."
Repayments skyrocket throughout the year
Today's rate increase caps off what has been a remarkable shift in the cash rate during 2022, which sat at an historic low of 0.10% as recently as May. Since then, the Reserve Bank has added 300 basis points to the rate - a move that is continuing to be sorely felt by many homeowners.
That's because the average mortgage rate has jumped nearly as dramatically, figures from financial comparison website Mozo show. In January, the average variable home loan rate for an owner occupier in the Mozo database was 3.07%, whereas at the start of December (before today's hike) the average was hovering around 5.41%.
As a result, a borrower on the average variable rate with a $500,000 mortgage being paid off over 20 years is paying over $600 a month more than they were at the start of the year.
Unsurprisingly, a sizeable chunk of homeowners with a mortgage are feeling the strain. Recent research conducted by Mozo found that as many as one in five borrowers are concerned that financing their mortgage will be 'touch and go' in the coming months.
"After a year of relentless rate rises, it's no wonder households are really battling to pay their mortgages," says Mozo personal finance expert, Claire Frawley.
"Most borrowers were not expecting rate rises to kick in until late 2024, but this final push from the RBA means that most mortgage holders will experience a massive 300 basis point increase to their variable home loans this year."
Frawley is urging borrowers to take action if they're unsatisfied with the competitiveness of the interest rate they're currently getting on their loan though.
"Now is the time to call your lender and negotiate a better interest rate or refinance if they won't budge. This one last finance chore could make a big difference to your budget."
What's the rate outlook for 2023?
While this latest rate rise will likely provide yet another hit to household budgets, one temporary point of relief for borrowers may be in the fact that the Reserve Bank board will now take a summer break - barring exceptional circumstances - until February 7.
That's not to say that there aren't more interest rate rises on the horizon though.
In a survey of 40 experts and economists conducted by comparison website Finder before today's interest rate decision, 83% said that they believed that the cash rate would peak somewhere between 3.25% and 4.00%.
As for when, 85% of the survey participants estimated that rates would peak next year, with March (17%) and June (17%) proving to be the most likely months for the peak to occur.
"Current economic conditions warrant a tightening of monetary policy, and while increases are expected to slow in 2023, consider three to four more rises over the next year to be likely," says survey respondent and lead economist at Impact Economics and Policy, Angela Jackson.
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