‘Little choice’ on rate rise
STRUGGLING homeowners have copped yet another interest rate hike, but the end of the Reserve Bank’s painful tightening cycle could now be in sight.
At its February board meeting today, the RBA lifted the official cash rate by 25 basis points to 3.35% – its highest level since September 2012.
While the news will come as a blow to mortgage holders battling nine consecutive increases, PropTrack director of economic research Cameron Kusher said the RBA had little choice.
“Despite signs of a marginal easing in inflationary pressures, with the highest rate of inflation recorded in decades it was a pretty easy decision for the RBA to continue to increase interest rates this month,” Mr Kusher said.
December quarter inflation data showed a slower than expected 1.9% increase quarter-on-quarter, but the annual measure was up a whopping 7.8%.
“It would be difficult for the RBA to maintain credibility as an inflation-fighting Central Bank had they not continued to lift rates this month,” Mr Kusher said.
But there could be some relief in sight, with signs that inflation might have peaked, and pressures will ease from here, he said.
“We’re already seeing a slowdown in growth in producer prices,” he said.
“Retail trade has shown early signs that it may have started to stall, while home prices continue to fall and demand for housing finance is continuing to slump.”
Mr Kusher believes one more interest rate rise of 25 basis points is likely this year, bringing the cash rate to 3.6%, at which point the RBA will sit tight.
However, a raft of economic data is due to come in before the board meets next in early March.
“Should the slowing continue and if economic growth comes in lower than expected, this might be the last of the hikes,” Mr Kusher said.
“Either way it appears we are nearing the end of the rate-hiking cycle.”
How much more borrowers will pay
Nine back-to-back rate hikes have put significant financial pressure on borrowers, Mortgage Choice chief executive Anthony Waldron said.
There’s little doubt that most lenders will be quick to pass on today’s rate hike in full.
“If you haven’t asked your mortgage broker to review your mortgage in the past 12 months, now is a great time to chat to an expert and start your year off on the right foot,” Mr Waldron said.
“I encourage all borrowers to take control of their home loans and be proactive about getting a better deal.”
For borrowers with $500,000 outstanding on their home loan, the February hike could add an additional $80 to their monthly mortgage repayments.
Those with a mortgage balance of $750,000 will pay an extra $121 a month after today’s increase, while those with a $1 million loan balance will cough up an extra $161 per month.
But of course, the cash rate has already risen eight times before today. Since May 2021, Aussies with a $500,000 mortgage could see the combined cost of the rate hikes total more than $960 per month – a staggering $11,556 more a year.