Pain for millions of Australian homeowners as new bank boss makes first call to hike rates: Here’s how much it’ll cost you – and a chilling hint of more to come

Australian borrowers have survived the 13th rate hike in 18 months, taking the Reserve Bank’s cash rate to a 12-year high of 4.35 per cent, while inflation remains ‘higher for longer’.

Michele Bullock has presided over her first rate hike as governor and has chillingly hinted that more pain is to come – with the latest quarter-percentage-point increase contributing to the heaviest pace of monetary policy tightening since 1989.

“Inflation in Australia has peaked, but is still too high and proving more persistent than expected a few months ago,” she said on Tuesday afternoon.

‘The latest CPI inflation figures indicate that while goods price inflation has continued to decline, the prices of many services continue to rise sharply.’

Australia’s Big Four banks had all expected a rate hike on Melbourne Cup Day as the consumer price index (CPI) rose 5.4 percent in the year to September, only a small change from the 6 percent on annual basis in the June quarter.

In an ominous sign, the RBA now expects inflation to return to the top of its 2 to 3 percent target at the end of 2025, rather than in June 2025.

“Since the August meeting, the board has received updated information on inflation, the labor market, economic activity and the revised set of forecasts,” Ms Bullock said.

“The weight of this information suggests that the risk of inflation remaining high for longer has increased.”

Chillingly, Ms Bullock hinted at further rate hikes, despite monthly mortgage repayments rising by 68 per cent in just 18 months.

“The administration remains steadfast in its determination to return inflation to target levels and will do whatever is necessary to achieve that outcome,” she said.

The Reserve Bank on Tuesday revised down its forecasts for inflation to fall to 3.5 percent at the end of 2024 and 3 percent at the end of 2025.

This differs from the August statement on monetary policy.

“The board determined that a rate increase today was justified to provide greater assurance that inflation would return to target within a reasonable timeframe,” Bullock said.

The first RBA increase since June will add $99 to an average $600,000 mortgage, with the cash rate of 4.35 per cent now at its highest level since December 2011, after last quarter of a percentage point increase from a high in 11 years of 4.1 percent.

Annual repayments on a typical Australian mortgage this month will be $18,744 higher than at the beginning of May 2022, when Reserve Bank interest rates were still at a record low 0.1 per cent and banks were offering mortgage interest rates that started with a ‘two’. .

In the final quarter of a percentage point increase, the Commonwealth Bank’s variable rate will rise to 6.69 per cent, up from 6.44 per cent.

Treasurer Jim Chalmers admitted that inflation was still too high.

“Inflation has been persistent in recent months, as the Reserve Bank has found,” he said.

Dr. Chalmers cited the 19.7 percent increase in gasoline prices in the latest monthly inflation data, even as Ms. Bullock focused on high inflation in the services sector.

“The most recent driver of inflation according to the most recent data was gasoline,” he said.

Tuesday’s increase marked the seventh Melbourne Cup Day increase in the past two decades, with the bad news also occurring in 2003, 2006, 2007, 2009, 2010 and 2022.

Philip Lowe was replaced as governor of the RBA in September after suggesting that 2021 rates would remain in place until 2024 at the earliest, only to increase them 12 times in just over a year as the Russian invasion in Ukraine pushed up crude oil prices over a period of time. of Covid supply restrictions.

Compare Markets economics director David Koch, better known as the former Sunrise host, said there are no Melbourne Cup Day winners after the latest 25 basis point rise.

Michele Bullock has presided over her first rate hike as governor and chillingly hinted at more pain to come – contributing to the heaviest pace of monetary policy tightening since 1989

“A rate hike was certainly a remote possibility today, but it still doesn’t help the pain in the hip pocket,” he said.

“For some, another $100 is needed for minimum monthly repayments, even though we can least afford it.

‘The RBA needs to keep inflation under control or it could really rocket in 2024. A tough day, but let’s hope it’s the last for a while.’

The Reserve Bank’s new forecasts will be released with more detail on Friday, when the quarterly monetary policy statement for November is released.