Tenth straight RBA hike pushes cash rate to 3.60%

The Reserve Bank Board has lifted the official cash rate for the 10th time in a row after agreeing upon a 25 basis point increase at its monthly meeting this afternoon.

Today's decision means that the official cash rate is now sitting at 3.60%, which is the highest point it's reached since back in May 2012.

In his post-meeting statement, RBA governor Philip Lowe continued to emphasise that the central bank was "resolute" in its desire to get on top of inflation which, while showing signs of having peaked, is still running far above normal and the bank's own target range.

"Global inflation remains very high. In headline terms it is moderating, although services price inflation remains elevated in many economies. It will be some time before inflation is back to target rates.

"The Board's priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.

"The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market."

Mortgage stress intensifies

While inflation may be the key concern for the Reserve Bank, most borrowers will be focused squarely on the fate of their mortgage rates. If the previous nine rate rises are anything to go by though, there's little chance that lenders won't pass on the 25 basis point hike.

For a borrower with a $600,000 loan who is currently paying a variable interest rate of 5.85% p.a., the latest increase would add an extra $92 to their monthly repayments, an analysis from financial comparison website Mozo has revealed.

Since May 2022, Mozo calculates that interest rate rises will have added over $14,000 to the annual repayments required of a typical borrower.

"Despite countless explanations from the RBA of why rates are continuing to rise, it doesn't make it any easier on household budgets. The compounding effect of these rate increases has seen mortgages increase by thousands of dollars a year," says personal finance expert at Mozo, Claire Frawley.

Unsurprisingly, as rates have increased, so too has the number of Australians at risk of mortgage stress - a term defined by Roy Morgan as borrowers who (depending on their income and spending) are paying more than 25% to 45% of their after-tax household income towards their loan.

In the three months to January Roy Morgan estimated that 1.19 million mortgage holders (24.9% of the total) were at risk of mortgage stress, which is the highest figure recorded since 2012. Though with a further two rate hikes since, that figure could well rise.

"The figures for January 2023 take into account the first eight of the RBA's interest rate increases which lifted official interest rates from 0.1% in May last year to 3.1% in January," says Roy Morgan chief executive, Michele Levine.

"The latest figures on mortgage stress show that interest rates are approaching levels that will cause a significant spike in the number of mortgage holders considered 'At Risk' over the next few months. If there is a sharp rise in unemployment during his period mortgage stress will rise precipitously towards the highest levels experienced during the Global Financial Crisis in 2007-09."

Savings rates edge higher

On the other side of the coin, Australian savers will likely be in store for another boost to their balances if today's rate rise flows through to savings account rates.

Like mortgages, savings interest rates have rocketed up over the past year, with some of the most generous offers on the market now well above the 4.00% p.a. mark. In fact, the Bank of Queensland recently announced a new rate of 5.15% p.a. on its myBOQ Future Saver account, though the account is limited to those aged 14 to 35.

"While savings rates aren't increasing at the same rate as variable home loan rates, it's still good to see both bonus and base rates climbing," says Frawley.

"Savings rates continue to inch higher every month, so it's a good idea to keep your eye out for a competitive rate. The highest base savings rate in the Mozo database right now is 4.00% and, excluding age restricted accounts, the highest bonus savings rate is 4.80%."

Will rates keep rising?

With another rate rise in the rearview mirror, the million-dollar question now is what will happen to the cash rate when the Reserve Bank Board meets next on April 4? The simple answer is that, at the moment, the consensus is mixed.

In its most recent RBA Cash Rate Survey, comparison website Finder found that 23 out of the 42 economists and experts polled (55%) believed that the RBA Board would stay its hand in April.

That's not to say that the recent cycle of rate hikes is over though. All four major banks are currently anticipating at least one more rate hike, with the Commonwealth Bank predicting a peak rate of 3.85% and ANZ, NAB and Westpac all predicting a peak of 4.10%.

Further on the horizon there may be some rate relief in store for borrowers though, with Westpac Group chief economist, Bill Evans, recently commenting that rates could begin to fall in 2024 if inflation is reined in to the Reserve Bank's target level.

"While we expect the economy to stagnate in the second half of 2023, there will not be sufficient progress in bringing inflation into line with the target before the end of 2023 to accommodate earlier rate cuts.

"Over the course of 2024 and 2025, we see 175bps of cuts to a low of 2.35% where the cash rate is expected to settle, with growth at trend and inflation at the top of the 2-3%yr range."

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