Another rate hike expected to fight stubborn inflation
RBA governor Philip Lowe is set to unveil another rate hike on Tuesday. Photo: TND
The Reserve Bank is tipped to hike interest rates for the 10th time in succession and inflict further pain on already-stretched Australian households.
The central bank will make a decision on lifting the cash rate on Tuesday after a series of rises that began in May 2022 in an attempt to rein in elevated inflation, which probably peaked in the December quarter at an annual rate of 7.8 per cent.
For mortgage holders, another 25 basis point rate hike will stretch household finances even further.
Analysis from comparison site Canstar shows another cash rate hike will add $1051 to monthly repayments (compared to April 2022 levels) on the average $500,000 loan with 30 years remaining on the term.
With inflation still well above the RBA’s two to three per cent target band, in recent communications the central bank has adopted a firmer stance on inflation and at the February decision indicated “further increases in interest rates” would still be needed.
The Australian National University RBA shadow board has assigned an 81 per cent probability to another rate hike on Tuesday and a 19 per cent chance the bank will hold.
“There are growing signs past interest rate increases are working their way through the economy, which are for example reflected in a weakening consumer outlook, but current economic conditions remain relatively benign,” the shadow board noted.
They pointed to the weaker-than-expected December quarter wage data and increasing unemployment rate as signs of worsening conditions for consumers.
But indicators of business performance and sentiment have been less conclusive.
“Businesses are doing alright on the back of relatively strong consumer spending, but the outlook for the future looks less rosy, which presumably reflects the impact of inflation on household budgets as well as tighter monetary policy,” they said.
The shadow board said the global outlook remained unchanged, with the war in Ukraine and other geopolitical tensions still the key risks.
After the March decision, most expect the RBA to keep hiking, with Commonwealth Bank predicting one more lift to the cash rate before pausing.
Westpac, NAB and ANZ economists are tipping two more hikes after the March decision to take the cash rate to 4.1 per cent.
-AAP