The Reserve Bank has raised interest rates for the 10th straight meeting in a row and continues to flag more hikes in a bid to bring inflation down.
At its second meeting of 2023 on Tuesday, the RBA pushed through a 0.25 percentage point hike, taking its target cash rate to 3.6 per cent.
It’s the highest level since-2012 and will add another $77 to monthly repayments on a $500,000, 25-year mortgage, according to RateCity.
That’s on top of the $908 increase that’s been locked in since last May.
RBA Governor Philip Lowe said the tighter squeeze remained necessary to push down inflation, signalling that even higher rates will be needed in 2023.
But there is some good news; inflation looks to have peaked in Australia.
“Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia,” Dr Lowe said.
“Services price inflation remains high, with strong demand for some services over the summer.”
Treasurer Jim Chalmers also acknowledged an apparent inflation peak in Parliament on Tuesday when responding to the RBA’s rate hike.
“We do expect that inflation has peaked, but it will be higher than we’d like for longer than we like,” Dr Chalmers said.
“This was expected, it was flagged, the markets anticipated it, but it will still sting.
“Last week’s national accounts showed that Australian households spent about $20 billion in mortgage interest payments in the December quarter, compared to about $11 billion in the same period a year earlier.”
Opposition treasury spokesman Angus Taylor said the government could offer only broken election promises and higher taxes.
“That is exactly the opposite of what we need,” he said.
“[There have been] nine consecutive interest rate increases since the election and indeed we have not seen that many interest rate increases in a row since before 1990. A long time ago.
“For a typical Australian family on a mortgage, this is very real pain being felt now.”
Tuesday’s rate increase was broadly expected by analysts, who had taken Dr Lowe’s commentary in February as a sign the central bank was prepared to be aggressive in 2023 to reduce inflation.
Dr Lowe said inflation was “way too high” and that “we’re not at the peak yet” when asked how high interest rates could rise in 2023.
The RBA is attempting to curb price growth by reducing the capacity of households to purchase goods and services, reducing demand and making it harder for businesses to hike prices more.
Recent economic data suggest that process has begun, with inflation easing in January amid a pullback in spending growth over the December quarter and some lower international prices.
But upcoming data on prices and the jobs market in early-2023 is expected to be critical in what the RBA decides to do next, with analyst forecasts currently suggesting several more rate hikes.
That’s because inflation, though starting to fall, is still far above the RBA’s 2-3 per cent target band – something that the bank itself predicts to continue until at least late next year.
Dr Lowe reiterated on Tuesday that demand was still running too hot across Australia, but that the RBA would not pre-empt its future rate decisions and will consider upcoming economic data.
“The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,” Dr Lowe said on Tuesday.
“In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
The RBA has hiked its interest rates target from a record low 0.1 per cent back in May 2022 to 3.6 per cent in its past 10 meetings.
Indeed APAC economist Callam Pickering said market forecasts suggest rates could hit 4.1 per cent in 2023, which would imply two more hikes.
“For that to occur, we’d need to see inflation show meaningful signs of improvement in April and then July – the next two quarterly inflation releases – along with some softer results from the monthly inflation measure,” Mr Pickering said in a statement.
“In the absence of that, the RBA will have little choice but to remain aggressive. A failure to address inflation today could leave it entrenched and more difficult to deal with later.”
