Reserve Bank in dire warning Aussies will be hit with an even bigger interest rate rise in two WEEKS as inflation soars meaning more cost of living pain
- Reserve Bank of Australia warns of June rate rise as inflation soars at faster pace
- The minutes of May meeting that raised rates warned of ‘inflation psychology’
- Borrower with a $600,000 saw monthly repayments this month rise by $78
Australian home borrowers are expected to be hit with an even bigger interest rate rise in June as inflation soars at an even faster pace than anticipated.
The Reserve Bank of Australia on May 3 raised the cash rate for the first time since November 2010 and has on Tuesday released the minutes of that meeting hinting at more pain to come to rein in strong consumer spending.
‘Members observed that it would be more difficult to return inflation to the target if the inflation psychology in Australia were to shift in an enduring way,’ it said.
Borrowers with a typical $600,000 loan are now adjusting to a $78 a month increase to their monthly repayments and could find themselves paying another $78 on their mortgage in June.
Australian home borrowers are expected to be hit with an even bigger interest rate rise in June as inflation soars at an even faster pace than anticipated
On Friday the 13th last week, Westpac and ANZ matched the RBA’s quarter of a percentage point increase that ended the era of the record-low 0.1 per cent cash rate.
NAB is on Tuesday passing on in full that 0.25 percentage point increase to its variable rate customers while the Commonwealth Bank, Australia’s biggest home lender, will raise its rates on Friday in line with the RBA move.
Economists are expecting a bigger-than-expected wage price index number for the March quarter, due out on Wednesday, to spark another rate rise in June.
This could undermine Labor leader Anthony Anthony’s call for the Fair Work Commission to raise the minimum wage from July 1 in line with the 5.1 per cent inflation rate – a level well above the RBA’s 2 to 3 per cent target.
Westpac, Australia’s second largest bank, is expecting the RBA to raise the cash rate by another 0.4 percentage points in June, taking it to 0.75 per cent from 0.35 per cent.
In its May meeting minutes, the RBA noted financial markets were at least expecting a 0.25 percentage point rise in June, with more rises that would take the cash rate to 2.5 per cent by 2023.
This month’s RBA rate rise was also the first during an election campaign since November 2007 (pictured is Prime Minister Scott Morrison campaigning in Ipswich)
The RBA this month surprised financial markets by raising the cash rate by 0.25 percentage points instead of 0.15 percentage points as expected.
‘Most market analysts also expected an increase in the cash rate target at the present and subsequent meetings,’ it said in its minutes.
This month’s RBA rate rise was also the first during an election campaign since November 2007, when Liberal prime minister John Howard lost power.
A typical Australian borrower with a $600,000 mortgage is this month seeing their variable rate climb from 2.29 per cent to 2.54 per cent, which will see they monthly repayments rise by $78 from $2,306 to $2,384.
Another 0.25 percentage point increase would see their monthly repayments rise by another $78 to $2,431, as their variable rate rose to 2.69 per cent.
The RBA minutes noted price increases were now being passed on to consumers, with the headline inflation rate of 5.1 per cent in March the highest since 2001 after the GST was introduced.
‘The key domestic development since the previous meeting was that inflation had increased to its highest rate in many years,’ it said.
The RBA is expecting inflation to hit 6 per cent by the end of 2022 as Russia’s Ukraine invasion threatens to push average Australian petrol prices back above $2 a litre, despite a six-month halving of fuel excise in March to 22 cents a litre.