The Reserve Bank has raised official interest rates to their highest level in nine years to prevent inflationary pressures from spreading throughout the economy. The Board has raised interest rates since May.
The bank increased the official cash rate by 0.25 percentage points following its regular monthly meeting, bringing it to 2.85 per cent, the highest level since early 2013. The increase was widely anticipated because the Bank revised the peak of inflation slightly higher this year, to 8 per cent, and it did not re-enter the target band in 2024.
The RBA increased its inflation forecast while decreasing its GDP forecast as it warned of additional economic headwinds from increased price pressures and rising rates. The RBA raised its annual inflation forecast from 7.75 per cent to 8 per cent. Furthermore, it has reduced its earlier forecast of 3.25 per cent GDP growth for Australia to 3 per cent for 2022.
For the fiscal year ending in September, the CPI inflation rate was 7.3per cent, the highest level in more than three decades. The RBA predicts that inflation will continue to rise in the coming months, peaking at around 8 per cent later this year. The Bank’s primary forecast is that CPI inflation will be slightly higher than 3 per cent in 2024.
‘Priority to curb inflation’
“Price stability is a prerequisite for a strong economy and a sustained period of full employment. Given this, the Board’s priority is to return inflation to the 2–3 per cent range over time. It seeks to do this while keeping the economy on an even keel. The path to achieving this balance remains narrow, and it is clouded in uncertainty,” RBA Governor Philip Lowe said.
“The Board expects to increase interest rates further over the period ahead,” he added.
While the debate over when to switch to smaller interest rate hikes to keep the world’s largest economy from collapsing heats up, US central bankers are expected to maintain their anti-inflationary stance this week.
According to projections made public following the September 20-21 meeting, the majority of the Fed’s 19 policymakers appear to anticipate being able to begin slowing rate increases in December and reaching a peak policy rate of 4.50-4.75 per cent in 2023.
$815 added to a $500k monthly mortgage cost
According to Graham Cooke, head of consumer research at Finder, Australians with a $500,000 mortgage will pay $815 more per month than they did just seven months ago. “Australian mortgage holders have received their seventh consecutive rate increase and can now anticipate paying hundreds more in interest each month,” Cooke said.
“This seventh consecutive rate hike – 275 basis points in total – will be a bitter pill to swallow for many. The current series of rate hikes has added almost $10,000 to the annual cost of a $500K mortgage.”
See the full statement here.
For further information, visit www.finder.com.au.