Reserve Bank of Australia raises interest rates by half percentage point – fastest rises since 1994

Australian home borrowers have now copped the harshest rate increases in almost three decades with the Reserve Bank raising the cash rate by another half a percentage point.

The latest 0.5 percentage point rise on Tuesday takes the cash rate a three-year high of 1.35 per cent from 0.85 per cent. 

This rise, on top of the May and June increases, means home have now copped 1.25 percentage points worth of rate increases over three consecutive months – the steepest increase in such a short time since late 1994.

The Reserve Bank of Australia has now also raised the cash rate at three consecutive monthly board meetings for the first time since 2010.

The latest increase means a borrower with an average $600,000 mortgage will owe their bank an extra $163 a month as Australia grapples with the worst inflation in two decades.

Australian home borrowers have now copped the harshest rate increases in almost three decades with the Reserve Bank raising the cash rate by half a percentage point

With inflation running at 5.1 per cent – the fastest pace since 2001 – RBA governor Philip Lowe has signalled more pain for home borrowers with unemployment at a 48-year low of 3.9 per cent.

‘Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,’ he said on Tuesday.

‘Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. 

‘The floods are also affecting some prices.’

Dr Lowe last month forecast Australia’s inflation rate hitting seven per cent for the first time since 1990 as Russia’s Ukraine invasion keeps global crude oil prices elevated. 

He signalled on Tuesday the RBA would keep raising rates to curb consumer spending.

‘One source of ongoing uncertainty about the economic outlook is the behaviour of household spending,’ Dr Lowe said.

The Reserve Bank of Australia has now also raised the cash rate at three consecutive monthly board meetings for the first time since 2010. Governor Philip Lowe last month forecast Australia’s inflation rate hitting seven per cent for the first time since 1990 as Russia’s Ukraine invasion keeps global crude oil prices elevated

Average capital city unleaded petrol prices are now well above $2 a litre, despite a temporary, six-month halving of fuel excise to 22.1 cents a litre in the previous Coalition government’s March budget. 

The Commonwealth Bank is expecting the RBA cash rate to hit 2.1 per cent by November while NAB sees that rate being reached in December.

Westpac is predicting a 2.35 per cent cash rate by February 2023 while ANZ is forecasting a 2.25 per cent rate by May next year.

The latest 0.5 percentage point means a borrower with an average $600,000 mortgage will see their monthly repayments surge by $163, rising from $2,495 to $2,658 as their variable rate rose in line with the RBA move.

The Commonwealth Bank, Australia’s biggest home lender, last week trimmed its popular variable rate by 0.15 percentage points to 2.89 per cent but the RBA’s latest increase would most likely see that rise to 3.39 per cent. 

The latest rate increases will further squeeze household budgets with a 141 per cent increase in wholesale electricity prices, in the year to March, set to be reflected in retail power bills, making up a third of what consumers pay. 

Even before the second Lockyer Valley floods in May, vegetable prices in the year to March surged by 6.6 per cent.

That was even more elevated than the overall headline inflation rate of 5.1 per cent – itself the highest since 2001.

Consumers have been paying $12 for an individual lettuce. 

The Reserve Bank of Australia signalled on Tuesday that it would keep raising rates to curb consumer spending (pictured is  cleaner outside the RBA headquarters in Sydney’s Martin Place)

Advertisement