Key points
- The Reserve Bank of Australia has increased the cash rate by 25 basis points to 3.1 per cent.
- The cash rate target is at its highest level since November 2012.
- Treasurer Jim Chalmers said rate rises are "having harsh and heavy consequences" on households.
Mortgage holders are facing more repayment pain after the nation's big four banks announced they would pass on the Reserve Banks of Australia's (RBA) latest rate hike in full.
The RBA on Tuesday lifted the official cash rate by 25 basis points to 3.1 per cent, its highest level in 10 years. The increase is the eighth rise in as many months, at the start of the year as the RBA tries to keep a lid on .
The Commonwealth Bank, NAB and ANZ announced on Tuesday they would up interest rates from 16 December, while Westpac said its increases would take effect from 20 December.
But while Westpac and the Commonwealth Bank said they would also increase the rates on savings accounts, NAB and ANZ have not announced any changes at this stage.
How much mortgage repayments will increase
The cash rate hasn't been above 3 per cent since April 2013, and above 3.1 per cent since November 2012, when it sat at 3.25 per cent.
The RBA's decision and the subsequent rate hikes will cause more pain for mortgage holders just before Christmas, at a time when .
A 0.25 percentage point rate hike will add an extra $79 to monthly repayments for a $500,000 loan over 30 years once passed on by lenders, or $160 for those with $1 million debt, according to financial comparison site Canstar.
Numbers crunched by fellow financial comparison site RateCity show repayments have increased by $1,251 since May for the average $750,000 loan with 25 years remaining.
"Global factors" are behind the high inflation Australia is experiencing, according to RBA Governor Philip Lowe. Source: AAP / Diego Fedele
"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. Returning inflation to target requires a more sustainable balance between demand and supply."
Two of the major banks, ANZ and Westpac, forecast the cash rate to reach as high 3.85 per cent by May 2023.
Canstar analysis suggests the total increase to repayments from May 2022 through to May 2023 on a $500,000 mortgage over 30 years could reach $1,133 per month.
Mr Lowe said he recognised 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.
Canstar’s analysis of the Australian Prudential Regulation Authority's household savings data and RBA credit card statistics shows households savings are up almost 10 per cent over the year and credit card debt incurring interest is down almost 5 per cent over the last 12 months.
"Australians are not quite battening down the hatches, as retail spending is yet to register a major downturn. But they certainly look to be banking their personal buffer," Canstar’s finance expert Steve Mickenbecker said.
More rate rises likely: RBA
Mr Lowe said further cash rate rises are expected in coming months but added that the board "is not on a pre-set course".
The RBA forecasts inflation to peak at around 8 per cent over the year to the December quarter before starting to decline next year. It has said it wants to return inflation to the 2–3 per cent range over time.
The board doesn't meet in January, but another rate hike is likely in February, economists say.
Mr Lowe added that the Australian economy is "continuing to grow solidly" but that "economic growth is expected to moderate over the year ahead as the global economy slows".
'Harsh and heavy consequences' of rate rises
Treasurer Jim Chalmers said interest rate rises are "already having harsh and heavy consequences on a lot of household budgets and on a lot of mortgage repayments" but he added the full impact of these rate rises is still to be felt.
"The Reserve Bank statement today makes it quite clear that they also expect household spending to slow over the period ahead, although the timing and extent of this slowdown is uncertain," he told reporters in Sydney.
But on the positive side, he highlighted Australia's , and high commodity prices, though he said was taking its toll on energy costs.
Unemployment fell to 3.4 per cent in October, the lowest rate since 1974, while national growth figures will be released on Wednesday.
Opposition treasurer spokesman Angus Taylor said the government was failing to tackle inflationary pressures at the source.
"Whether it is their failure to resolve energy price pressures or failing to rein in spending, the inaction of this government is increasing pressure on the budgets of hardworking Australian families," Mr Taylor said.
With AAP
