Rates on the rise as RBA wrestles with inflation
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The Reserve Bank of Australia announced a further 0.50 percentage point increase to the cash rate this afternoon. It is the fifth cash rate hike since May, lifting the official interest rate to 2.35, the highest in seven years.
Financial comparison website, RateCity.com.au says the announcement will lift the average borrower’s repayments by $144 a month, based on a $500,000 loan. This will bring the total increase from May, when the latest rate rises began, up to $614 a month. For mortgage holders with loans of $1 million, it represents an extra $1,229 per month over the same period.
Today’s expected rise may not be the end of the increases, with Westpac predicting that the cash rate will rise to 3.35 percent by February 2023.
The increase reflects the RBA’s ongoing efforts to drive down inflation. RBA Governor Philip Lowe said in a statement that the board ‘places a high priority’ on getting inflation down to two or three percent over time, while keeping the economy steady.
“Inflation is expected to peak later this year and then decline back towards the 2–3 per cent range,” Mr Lowe said. “The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, the stabilisation of commodity prices and the impact of rising interest rates.
“Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.”
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The Westpac-Melbourne Institute Consumer Sentiment Index slipped to 84.6 in September from 85.0 in August
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SYDNEY—Australian consumer confidence fell in September amid concerns about job security as economic growth slows to a crawl.
The Westpac-Melbourne Institute Consumer Sentiment Index slipped 0.5% to 84.6 in September from 85.0 in August.
While cost-of-living pressures are becoming a little less intense and fears of further interest rate rises have eased, consumers are becoming more concerned about where the economy may be headed and what this could mean for jobs, said Westpac’s Head of Australian Macro-Forecasting, Matthew Hassan.
Consumers remain concerned about rising inflation, which is stoking concerns that interest rates may rise further, Hassan added.
The report comes a week after data showed the economy barely registered a pulse in the second quarter as consumer spending dropped sharply.
On-year GDP growth in the second quarter was the weakest since the early 1990s, excluding the pandemic years.
At the same time, the Reserve Bank of Australia continued to signal that interest rate cuts are unlikely in the near term, while adding that under certain circumstances a further hike in interest rates may be needed.
The RBA remains concerned about price growth, with core inflation remaining stubbornly elevated at nearly 4.0% on year in the second quarter.
Still, while consumers are downbeat, economists expect spending to regather momentum over coming quarters as income tax cuts delivered in July boost household budgets.
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