The ink has barely dried on the RBA’s latest interest rate hike – but experts say things are about to get “much worse” for Australians.
The Reserve Bank of Australia is set to raise the official exchange rate for the second month in a row today, marking the first straight rate hike in 12 years.
Last month, the RBA raised the policy rate by 25 basis points from an all-time low of 0.1% to 0.35%.
Another rate hike after this afternoon’s meeting is all but certain, with experts predicting a 25 or 40 basis point hike, which could see the cash rate hit 0.75% within hours.
But the clues from the RBA’s May meeting – along with the predictions of countless financial experts – indicate that today’s rise will be just the tip of the iceberg.
Three words reveal months of pain to come
A cursory perusal of the May board meeting minutes shows that further rate hikes are inevitable, with the RBA predicting the cash rate to rise to around 1.75% by the end of 2022 .
But it is the very wording of the RBA that reveals the most alarming clues of what lies ahead.
The word “risk” was repeated six times, while the Board referred to “uncertainty” nine times and “inflation” 39 times.
These are not words you see when things look rosy or when a quick turnaround is on the horizon, which is why some insiders expect the cash rate to climb even higher at 2.5% by the end of the year, in dire straits. attempt to bring inflation under control.
But that comes with a risk of its own, as KPMG senior economist Sarah Hunter explains. The Guardian that if the RBA needs to bring the cash rate back to a normal level “as soon as possible”, it must do so “without creating a ‘climb shock’ by moving rates too quickly, too soon”.
‘Much worse’: Australia on the brink
In the RBA survey of cash rates carried out this month by comparison site Finder, 86% of economists and experts expect one hike, while 28% think there will be at least two increases cash rates before the end of the year.
Consumer research chief Graham Cooke said Australians were already feeling the pinch, adding there was a chance the June rate hike could be higher than expected – 40 basis points instead. of 25.
“The economy is on the brink and some families are really starting to struggle financially with the cost of living – and for those with a home loan, it could get worse,” he said.
“The cash rate increase is good news for savers and will help slow the runaway Australian property market, but those with a home loan are in line for several more cost increases.”
And according to new research from Mozo, three-quarters of borrowers have already prepared for rate hikes.
But Mozo’s analysis finds that if lenders raised home loan rates by 40 basis points, borrowers paying principal and interest on an average loan of $500,000 over 25 years could see their repayments increase by $107. per month, going from $2,431 to $2,538.
Mozo’s research found nearly a third of borrowers put extra money into their savings accounts to prepare for higher interest rates, while nearly a quarter hid money. money in clearing accounts to help reduce mortgage payments.
Meanwhile, PropTrack economist Paul Ryan told news.com.au that another rate hike would impact property prices and affect short and long-term borrowers.
“We are likely to see continued slow growth in house prices as the cash rate increases,” Ryan said, but added that it was difficult to predict exactly when and how much this will affect the market. .
“It normally takes a while for interest rate hikes to start affecting (housing) prices,” he said.
“I think, although it’s correlated, it’s more of a coincidence that we saw those first house price declines in May, just after the RBA raised rates for the first time in over a decade. .”
He said the fall in prices was less caused by the RBA’s decision than a side effect of inflationary pressures and increasingly cautious buyers in anticipation of a rate hike that caused a “dramatic slowdown in the growth that ended in a fall”.
– with Georgina Noack
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