The Reserve Bank of Australia (RBA) delivered a surprising 12th rate hike since May last year, increasing interest rates to combat persistently high inflation.
The cash rate target has been raised by 25 basis points to 4.10 per cent, defying market expectations for a pause in rate hikes in June. This decision will result in an additional $1,264 in mortgage repayments for the average Australian homeowner since April 2022, when the cash rate was at 0.10 per cent.
RBA signals potential for further hikes
RBA Governor Philip Lowe emphasized the need to contain inflation in his monetary statement, stating that although inflation in Australia has peaked, it remains at 7 per cent, which is still considered too high. He suggested that additional tightening of monetary policy may be required to bring inflation back to the target range. The RBA will closely monitor global economic developments, household spending trends, and the outlook for inflation and the labor market to determine future actions. The board remains determined to return inflation to the target range.
Treasurer expresses concerns
Treasurer Jim Chalmers acknowledged the challenges the rate hike poses for Australians, particularly those with mortgages. He highlighted that everyday Australians, who are already burdened by rising interest rates, should not be blamed for inflation-related decisions such as seeking pay raises or purchasing property.
Mortgage holders face tough times
Brendan See, Chief Operating Officer of Compare Club, addressed the difficulties faced by mortgage holders with fixed-term rates set to expire. He noted that around 20 per cent of those seeking to refinance have a Loan-to-Value ratio (LVR) of 80 per cent or higher, trapping them in mortgage-related difficulties. As larger lenders withdraw cashback offers from the market, other lenders are expected to follow suit, leaving homeowners with higher mortgage repayments without any financial incentives. See advised homeowners to consult with brokers to explore better deals to mitigate the financial impact.
Anneke Thompson, Chief Economist at CreditorWatch, discussed the rationale behind the RBA’s decision to increase the cash rate despite signs of an economic slowdown. Thompson pointed out that persistently high inflation, particularly in housing, food, and transport sectors, and the lack of productivity growth over the past three years, contributed to the rate hike. Additionally, concerns over rental market inflation and the spending habits of non-mortgaged and non-renting households were also highlighted as factors influencing the decision.
Retailers call for RBA to rethink interest rate strategy
The National Retail Association CEO, Greg Griffith, urged the Reserve Bank to reconsider its decision to raise interest rates, emphasizing the challenges faced by businesses in the wake of consecutive rate hikes and significant wage increases.
Griffith stated that the cost of doing business has become unfeasible, with retailers grappling with staffing issues, inflation, and declining consumer confidence. He expressed concern that the combination of higher interest rates and wages could force many retailers to close their doors, calling for stability to support both retailers and consumers.
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