The Reserve Bank has delivered an eighth straight interest rate rise, taking the official cash rate to its highest level in 10 years.
The RBA board, in its last meeting for the year, raised interest rates by another quarter of a percentage point to 3.1 per cent.
In announcing the rise, RBA governor Philip Lowe said at 6.9 per cent over the year to October, inflation in Australia was still too high.
The RBA began lifting the cash rate from its historic low of 0.1 per cent in May in an attempt to curb surging inflation.
The average discounted mortgage rate then was about 3.45 per cent. If banks pass on today’s increase in full, that average will now be 6.55 per cent.
The comparison website Finder said Australians with a mortgage of $500,000 would now be paying almost $900 more per month compared to what they were paying in April.
“To comfortably afford this you’d need to be earning a minimum income of just over $180,000—significantly more than the average salary,” Finder’s head of consumer research Graham Cooke said.
Inflation is currently at 7.3 per cent, and the bank expects it to peak around 8 per cent by the end of the year, before falling through 2023.
“Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role,” Lowe said.
“Returning inflation to target requires a more sustainable balance between demand and supply.”
But the Housing Industry of Australia warned the RBA would not restore the economy to stable growth by putting the housing industry “through boom-and-bust cycles.”
“Home building was already set to slow significantly in 2023 and today’s rate rise will exacerbate this downturn,” HIA chief economist Tim Reardon said.
“Home buyers have exited the new home market rapidly following the first increase in the cash rate in May. The RBA should have paused to observe the impact of the fastest increase in a generation and not continued to raise rates.”
CoreLogic Australia’s head of research Eliza Owen said there were still some indicators it is too early for a pause in the rate tightening cycle.
“The September quarter ABS business indicators data, released this week, reflected a 2.9 per cent increase in wages and salaries, a growth rate not seen since 2007,” Owen said.
She said the higher rate environment will test housing market conditions in 2023, when the majority of outstanding fixed-term mortgages are expected to expire.
Australia’s biggest financial comparison website Canstar said households appeared to be building their financial buffer in preparation for higher rates next year.
“Analysis of APRA monthly household deposit data shows that Australian households have continued to grow their stockpile of savings,” Canstar’s Steve Mickenbecker said.
“Over the past year, households have increased their savings by an estimated 9.87 per cent,” he said.
The RBA acknowledged there had been a substantial increase in interest rates since May and hinted there were more to come.
“The board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments,” Lowe said.
“The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.”
