Blow to mortgage holders as RBA hikes rates
Mortgage holders will take another blow to their finances after the Reserve Bank lifted interest rates, with the dollar impact revealed.
The Reserve Bank has lifted interest rates for a third straight meeting amid fears the Middle East oil crisis could make inflation worse before it gets better.
The central bank’s monetary policy board voted in a split 8-1 decision to raise the official cash rate by 25 basis points to 4.35 per cent, as it wrapped up a two-day meeting on Tuesday.
For an average borrower with a $600,000 mortgage, the three consecutive hikes since February will cumulatively add more than $270 a month in interest repayments.
The move was tipped by the majority of economists and financial markets, which had priced in the chance of a hike at about three quarters.
Inflation was well above target before the Middle East conflict effectively closed the Strait of Hormuz, sending global energy markets into chaos.
Surging fuel prices have only amplified the central bank’s inflation headache.
You might like
But some analysts cautioned the decision was no slam dunk.
The RBA also has to take into account the risks to employment as part of its dual mandate and the Middle East conflict is likely to hit economic activity.
Even as the RBA board was considering its decision overnight, tensions in the vital shipping lane continued to escalate.
Cargo ships and oil infrastructure were reportedly damaged as hostilities briefly resumed in the vital shipping lane, driving up oil prices and exacerbating fears that inflation could be higher for even longer.
Headline inflation surged to 4.6 per cent in the year to March, although many analysts believe the worst is yet to come as fuel prices flow through across the economy in coming months.
The decision was announced as the Reserve Bank released updated economic forecasts, in which the bank’s staff economists lifted their near-term predictions for inflation.
Stay informed, daily
Attention now turns to governor Michele Bullock’s post-meeting press conference, as traders try to guess whether the RBA has more hikes in store.
Partner at Deloitte Access Economics Stephen Smith described the rise as “all but inevitable” with underlying inflation running above the RBA’s target band since well before the Middle East conflict.
He also warned that there was a risk that “rates could rise to levels not seen for around 15 years”.
At the same time, the latest Statement on Monetary Policy, also released today, reveals that the RBA has further downgraded its medium-term growth outlook to just 1.4 per cent – a historic low.
“Accordingly, next week’s Federal Budget will be critical. The government will need to demonstrate a genuine commitment to fiscal discipline and structural reform, rather than relying on broad-based, short-term cost-of-living measures that may provide temporary relief while adding to medium-term inflation persistence.
“Without reforms that lift productivity and expand supply-side capacity, an economy that was already operating near capacity before the Middle East conflict is likely to remain constrained. In that environment, inflationary pressures will be more difficult to contain, and the risk of further monetary tightening will remain elevated.
“Similarly, if public spending continues to support aggregate demand at current levels, the burden on monetary policy is likely to increase.”
Meanwhile, KPMG chief economist Brendan Rynne said the RBA had conceded it had to lift interest rates to bring inflation under control – even if that meant higher unemployment.
“The RBA is now realising that maintaining credibility in its inflation fight is more important than remaining fixated on full employment,” he said.
“The most recent inflation read by the ABS shows the effect of the Iranian conflict has so far been benign, but that the March inflation outcome may have been the calm before the storm.
“With this in mind, we fully expect the RBA to continue its upwards march setting higher cash rates in the near term.”
-with AAP
Want to see more stories from InDaily Qld in your Google search results?
- Click here to set InDaily Qld as a preferred source.
- Tick the box next to "InDaily Qld". That's it.
