Reserve Bank of Australia lifts the official cash rate by half a percentage
Australia’s official cash rate has climbed by 0.5 per cent (or 50 basis points), following today’s meeting of the Reserve Bank board.
The hike has exceeded forecasts by each of the big four banks, which had predicted a rate rise of 0.4 per cent or less.
It is the single biggest rate rise since February 2000.
The official cash rate now sits at 0.85 per cent.
If passed on in full by the banks, mortgage holders with a $500,000 loan and 25 years remaining could cough up an extra $133 per month for repayments.*
ANZ and Westpac had forecast a rise of 40 basis points, while CBA and the NAB had predicted a 25-basis point hike.
Reserve Bank Governor Philip Lowe said continuing high inflation, a strong economy and labour market and global economic uncertainty were factors in the board’s decision to act decisively.
“Today's increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic,” he said.
“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today.
“As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.”
Further rate hikes are still expected.
Many economists are speculating that the cash rate could increase to 1.75 per cent by the end of the year and hit 2.5 per cent by the end of 2023.
That would equate to an extra $652 in monthly repayments for a $500,000 loan.
“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” the RBA Governor said.
“The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market.
“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
While the hike adds to the cost for borrowers, it should be good news for savers.
However, since the May interest rate rise, only one of the four big banks – Westpac – has passed that increased rate onto its retiree accounts.
*Based on an owner-occupier paying principal and interest with 25 years remaining on the average variable rate, according to Rate City
SOURCE https://www.tropicnow.com.au/2022/june/7/reserve-bank-of-australia-lifts-the-official-cash-rate-by-half-a-percentage