Experts agree pain is on the way for Australian homeowners within hours, with the RBA set to announce the first rate rise in 11 years.
It’s a tense day for Aussie homeowners, with countless families bracing for a historic interest rate hike within hours.
The Reserve Bank of Australia is now all but certain to lift Australia’s official cash rate by 15 basis points to 0.25 per cent from 0.1 per cent when it meets this afternoon.
If the RBA does so, it will be the first rate rise in 11 years – since November 2010 – and will be a desperate attempt to clamp down on skyrocketing inflation, which has reached an annual rate of 5.1 per cent and has sent prices climbing at the fastest rate in two decades.
It will also be the first rate rise during an election campaign since 2007, when John Howard lost out to Kevin Rudd.
The nation’s cash rate has been sitting at the historic low of 0.1 since 2020, when it was slashed in response to the Covid-19 crisis.
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RBA ‘not going to stop’
While a rate rise to 0.25 per cent is relatively minor, economists believe the RBA won’t stop there, with some experts predicting interest rates will rise to 2.5 per cent by the end of 2022.
In fact, senior economist at Nomura Australia and rate strategist Andrew Ticehurst recently told The Daily Telegraph they believe the interest rate will be increased monthly until December, meaning we could be in for a rate rise every month until Christmas.
According to comparison site Rate City, a rate rise to 0.25 per cent would translate to repayments jumping by $39 for the average owner-occupier with a $500,000 debt and 25 years remaining – a figure which will soar to $511 per month if the cash rate continues to rise to 2 per cent, as widely expected.
Rate City research director Sally Tindall said borrowers “should be aware the RBA is not going to stop at just one hike”.
“The RBA is likely to lift the cash rate multiple times over the next six to 12 months as it works to bring inflation back under control,” she explained.
“If the cash rate gets to 2 per cent by May next year, then someone with $500,000 owing on their loan today and 25 years remaining could be looking at a total increase to their monthly repayments of $511.
“That’s going to be a lot for many borrowers to swallow, particularly anyone already struggling to make the monthly budget add up.
“Variable rate borrowers don’t have to take these RBA hikes lying down. If you haven’t given your mortgage a health check recently, now’s the time to do so.”
But the prospect of non-stop rate rises has some on edge, with Australian Council of Social Service CEO Dr Cassandra Goldie warning the next government against taking a hard line on budget spending.
“Interest rates will inevitably rise above their historically low level, but we hope the RBA follows its own advice to hasten slowly from now on so that the benefits of full employment are realized,” she said.
“Along with improved income supports for those who are struggling the most, the best way to ease cost of living pressures is to strive for full employment, promote growth in wages and tackle the housing crisis, particularly for renters and those struggling the most.
“Avoiding a rapid rise in interest rates would also ease the impact on people who have taken on high levels of debt, with little behind them, to break into our vastly overpriced housing market.
“The major parties should rule out brutal spending cuts like those in 2014 which would smother jobs growth.”
Good news for savers
However, a rate rise is not all bad news, with savers set to be the big winners after two long years of earning little to no interest.
“With inflation surging at the fastest pace in two decades, and savings rates at all-time lows, most people’s hard-earned cash has been going backwards. It’s time to turn this around,” Ms Tindall said.
“While we expect banks to finally start lifting deposit rates, there’s no guarantee they’ll mirror the RBA the whole way.
“Banks are full to the brim with cash. This will make it a costly exercise to pass these hikes on in full, but that’s what they should do.”