More household pain after fourth rate hike

HOMEOWNERS will need to find an extra few hundred dollars a month to pay their mortgage after the Reserve Bank hiked interest rates for the fourth month in a row on Tuesday.

The official cash rate was raised by 50 basis points to 1.85 per cent – off the record-low 0.1 per cent before May.

It’s also the first time the central bank has raised interest rates for four-straight months since the RBA set its target of 2 to 3 per cent inflation in 1990.

Governor Philip Lowe said the RBA had made the decision in a bid to drive down the 6.1 per cent inflation figure.

In a statement, he said the path to returning inflation under 3 per cent while keeping the economy on an even keel was something that would take time.

“The path to achieve this is a narrow one and clouded in uncertainty, not least because of global developments,” Dr Lowe said in a statement.

“The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine, and the Covid containment measures in China.

“Today’s increase … is a further step in the normalisation of monetary conditions in Australia.”

Tuesday’s rate rise means those paying off the average home loan of $500,000 will have to cough up an extra $140 each month.

Dr Lowe said inflation was expected to peak this year before declining back towards the 2 to 3 per cent range and the Australian economy was expected to continue to grow. He said this month’s rate rise was “required” to bring inflation back to target and create a sustainable balance of supply and demand.

He noted the biggest cause for concern for the months ahead was the uncertainty caused by the behaviours of household spending.

“Higher inflation and higher interest rates are putting pressure on household budgets,” he said. “Consumer confidence has also fallen and housing prices are declining in some markets after the large increases in many years.

“The board will be paying close attention to how these … factors balance out.”

Treasurer Jim Chalmers said he recognised today was “another difficult day” for Australians with a mortgage.

“This decision doesn’t come as a surprise, it’s not a shock to anybody, but we’re still seeing families who will now have to make more hard decisions about how to balance the household budget,” Dr Chalmers said.

“In the face of other pressures like higher grocery prices and higher car prices and the cost of other essentials.”