The Reserve Bank is leaving interest rates on hold as an early Christmas present for borrowers – but here’s why Australians with mortgages should worry
Australian borrowers have been warned to expect another rate hike, even though the Reserve Bank left rates unchanged this month.
The cash interest rate is already at a twelve-year high of 4.35 percent, after the RBA last month raised rates for the thirteenth time in eighteen months.
But inflation of 4.9 percent in October was still well above the Reserve Bank’s target of two to three percent.
That means the most severe monetary policy tightening since 1989 could get worse.
RBA Governor MIchele Bullock hinted on Tuesday that more pain was to come, despite the pre-Christmas postponement.
“Whether further monetary policy tightening is necessary to ensure that inflation returns to target within a reasonable timeframe will depend on the data and the evolving risk assessment,” she said.
Economists fear the RBA could raise rates again in February if inflation data for the December quarter, due in late January, shows continued pressure on consumer prices.
Australian borrowers have been warned to expect another rate hike, even as the Reserve Bank left rates unchanged this month (pictured is a stock photo)
The Reserve Bank last month adjusted its forecasts to bring inflation back to three percent by the end of 2025 instead of mid-2025, and this continues to worry the board.
“Returning inflation to target within a reasonable timeframe remains the administration’s priority,” Ms Bullock said.
‘High inflation makes life difficult for everyone and damages the functioning of the economy.
“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality.”
But Deloitte Access Economics partner Stephen Smith said higher interest rates were unfairly impacting young and struggling borrowers.
“The RBA’s blunt monetary policy tool is the wrong weapon to use against these challenges,” he said.
“In fact, higher interest rates will make it more difficult for Australia to increase housing supply and alleviate the cost of living faced by younger Australians who rent or have a mortgage, and who enter the holiday season in a very precarious position.”
National Australia Bank has urged borrowers to seek help, with executive director of home ownership Andy Kerr noting cost-of-living pressures are still hurting.
“Although cash rates are unchanged this month, costs for gas, groceries and utility bills are still rising,” he said.
The cash interest rate is already at a twelve-year high of 4.35 percent, after the RBA last month raised rates for the thirteenth time in eighteen months. Governor Michele Bullock hinted that more pain was possible
‘Today’s news is welcome for a third of people with a mortgage, but the rising cost of living may make some people more concerned about their financial situation.
‘If you find yourself in that position, contact your bank as soon as possible. We are ready to help you.’
The variable mortgage interest rate has risen from ‘two’ to a level approaching seven percent since May 2022.
As a result, monthly mortgage payments have skyrocketed by 68 percent.
A borrower with an average mortgage of $600,000 went from $2,306 per month to $3,868.