The Reserve Bank has resumed hiking interest rates, dashing hopes of another mortgage bill reprieve in May.
The cash rate will rise 0.25 percentage points to 3.85 per cent, a decade high, adding $78 to monthly repayments on a $500,000, 25-year loan.
That’s on top of the almost $1000 already added over the past year.
The move comes despite recent data showing headline inflation slowed over the March quarter, falling from 7.8 per cent to 7 per cent annually.
But RBA governor Philip Lowe said that’s still far higher than the RBA’s medium term target of 2 to 3 per cent, requiring another rate increase.
“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” he said in a statement on Tuesday afternoon.
“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.”
Economists had been split on whether the RBA would pause rates again or opt for another hike amid fears low unemployment and high services inflation would require yet another rate increase.
Dr Lowe said a pause in rates last month allowed central bankers to get more data on how inflation and jobs were developing in early 2023.
“The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook,” he said.
“While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range.
“Inflation is expected to be 4.5 per cent in 2023 and 3 per cent in mid-2025.”
Central bankers have attempted to use interest rate hikes to stem rising inflation – putting the squeeze on household budgets so that they spend less on goods and services, slowing growth.
That process is now unfolding, with slower spending growth and an easing in global supply chain pressures in early 2023 combining to push down prices for many popular retail goods.
However, rents and prices for other essential services such as electricity have begun rising sharply, sparking fears it may take several years for inflation to fall back within RBA targets.
Dr Lowe is due to deliver a speech to an RBA board dinner in Perth on Tuesday night, where he is expected to outline how the RBA is thinking about inflation in Australia and whether further rate hikes are needed.
