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Aussie mortgage holders brace for an even bigger interest rate rise TODAY as Reserve Bank desperately tries to combat soaring inflation – here’s what it will mean for you
- The Reserve Bank is expected to lift the interest rate on Tuesday afternoon
- Some economists say a 0.5 per cent increase is possible but likely smaller
- At 0.5 per cent on a $750,000 loan, monthly mortgage bills would rise by $199
Australian households are expected to be hit with another interest rate hike pushing up mortgage bills on top of rising electricity, supermarket and petrol prices.
The Reserve Bank of Australia is set to make an announcement on Tuesday afternoon with economists predicting either a 25-point lift to 0.6 per cent or a 40-point lift to 0.75 per cent.
A cash rate of 0.6 per cent would add $99 to an average $750,000 mortgage while a rise to 0.75 would add an extra $159 to monthly repayments.
Tuesday’s expected rate rise would be the first consecutive monthly hike by the RBA in 12 years.
Supermarket staples are more expensive thanks to inflation increasing to 5.1 per cent in the first three months of this year (file image) driven partly by pent-up consumer demand and supply chain issues
Petrol has surged to well over $2-a-litre as the world boycotts Russian oil (file image)
The central bank is balancing the task of raising interest rates to put downward pressure on inflation but not raising them too much so that consumer spending plummets and the economy stalls.
According to the latest Consumer Price Index figures by the government in the first three months of this year supermarket staples like vegetable rose 6.6 per cent and fruits 4.9 – which was helped along by the floods damaging crops – while a 2-litre bottle of Coca-Cola jumped by 50 cents.
The war in Ukraine has caused petrol prices to spike, courtesy of a boycott on Russian oil, to well over $2-a-litre.
But this has lately leaked into the electricity market as the increased demand for Australian coal pushes the price up, compounded by the falling reliability of coal power stations.
Bloomberg’s survey of 29 economists released on Monday found 15 were forecasting a cash rate rise of 0.25 per cent, 11 were backing a 0.40 rise and the remaining three said the rate could even jump by 0.50 per cent.
They also agreed rate hikes would be likely almost every month in the second half of 2022.
The average mortgage repayment could increase by more than $500 by 2023 (file image)
Felicity Emmett, a senior economist at ANZ, said the strength of the economy should warrant the larger rate hike.
But peers at CBA and NAB said the recent change of government, weakening property market and steady wages should prompt a weaker rate increase.
Some economists are even calling on employers to raise wages which have failed to keep up with inflation.
‘Wages, prices and interest rates are the three amigos – they move together and ultimately it’s wages that drive the other two,’ Deloitte Access Economics partner Chris Richardson previously said.
‘Over the past decade and a bit in Australia and around the world, wage growth has weakened, so inflation has weakened and interest rates have gone down.
He said as the economy goes ‘into the next phase’ with inflation and interest rates rising, wages must be increased to keep up.
The RBA’s announcement will be at 2.30pm AEST on Tuesday.
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