On Tuesday afternoon, the Reserve Bank of Australia brought up the cash rate from 3.1 per cent to 3.35 per cent.
This is the ninth time the interest rate has risen since May last year, with many Australian homeowners struggling to stay afloat.
The rate has jumped 325 basis points in only less than a year, making it the fastest and largest rate hiking cycle on record.
For an Australian on a $500,000 mortgage, their monthly repayments will jump by $969 per month, or $11,628 per year if banks pass on the rate. For homeowners stuck with a $1 million home loan, they’ll be enduring an extra $1,939 a month – that is $23,268 over the next 12 months.
The latest rate rise kills any hopes of the RBA hitting pause on more rate hikes. According to the Australian Bureau of Statistics the annual rate of inflation was at 7.8 per cent in January, marking the highest yearly increase since 1990.
RBA governor Philip Lowe in a statement said: “Global inflation remains very high”.
Lowe suggested that this wouldn’t be the last rate rise of the year.
He said that inflation is “moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy.
“It will be some time, though, before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.”
Lowe warned of “uncertainty” to come and said the current inflation levels were worryingly below the RBA’s goal.
“The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments,” he said.
“There is uncertainty around the timing and extent of the expected slowdown in household spending….
“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.
“The Board is seeking to return inflation to the two to three per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”
Steve Maras, the CEO of the Maras Group told Neos Kosmos that the latest RBA rate hike, “the ninth in a row, will cause even more undue pain for households trying to stabilize their budgets.”
“This will further curtail spending and negatively impact on property prices. This is the most aggressive rate hike I’ve seen in such a concentrated period in my 30 plus years in business.”
Earlier on Tuesday, Stephen Koukoulas, managing director of Market Economics, on Twitter called the RBA announcement “a horrendous outcome” and added that the RBA “haven’t learned a thing.”
“It appears, [the rate hike] not because the growth is strong, they have the economy in per capita terms tilting into a protracted two-year recession Koukoulas said.
The risk, according to the economist, is that if Australia’s central bank keeps increasing the rates, by the time inflation gets under control, the economy will be incredibly weak, and Australians will still be struggling.
“Up until 18 months ago we have had basically 25 years of very low inflation,” Mr Koukoulas explained.
But now homeowners across the country have endured eight consecutive rate hikes last year starting from May, despite originally being told the rate wouldn’t rise until 2024.
Australia’s big four banks have weighed in and don’t expect the Tuesday rate hike to be the last.
ANZ and Westpac both have forecast for the cash rate to peak in May once it reaches 3.85 per cent.
They expect two more rate rises after the February meeting to reach the terminal rate before Australians will get a reprieve.
The bank’s economists said by March, the interest rate will have peaked at 3.6 per cent.
The Commonwealth Bank had the most optimistic prediction of all, suggesting that interest rates could peak on Tuesday afternoon but then pause while the RBA reassessed and waited for more reports on inflation.