Finance Tough day as interest rates tipped to rise

Tough day as interest rates tipped to rise

inflation profit australia
Specific interest rate rise estimates need to be treated with caution, says the RBA board. Photo: AAP
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Many Australians can expect a “tough day” with the Reserve Bank widely expected to again lift the cash rate, Treasurer Jim Chalmers says.

Economists predict the RBA board will announce a 50 point rise in the cash rate, lifting it to 1.35 per cent.

RateCity estimates a 50-point rise will add $137 a month to a $500,000 mortgage, or $499 per month on a $750,000 loan.

“A bigger proportion of household budgets which are already stretched by the price of petrol, groceries, electricity and other essentials will be eaten up by mortgage repayments,” Dr Chalmers told Sky News on Tuesday.

“People will find today’s news really difficult. I think it will be a tough day for a lot of homeowners.”

The board is seeking to use rate rises to push inflation back into its two to three per cent target band as it heads towards a predicted peak of seven per cent towards the end of the year.

Dr Chalmers said while some people had been able to build up buffers in their mortgages, others “are right on the margins”.

“For them, today’s decision will be incredibly difficult.”

Dr Chalmers told the ABC the rate rise, which is an independent decision of the RBA, would add to other pressures on the federal budget and economy.

“Unfortunately, we have got a very difficult combination of circumstances, natural disasters, inflation, rising interest rates, and our job as the new government is to try and build an economy and budget which is as resilient as the Australian people prove themselves to be again and again.”

Another hike is expected in August following the release of second quarter inflation data.

Former RBA board member John Edwards said a rate rise appeared to be a “very straightforward decision”, with a strong economy, low unemployment, rising inflation and high export prices.

“Oil prices may have peaked out or are close to a peak and that’s true also for food prices … so I think there are reasons to think that in the second half of the year inflation will begin to slow down,” he told ABC radio.

RBA shadow board member Sarah Hunter said the Australian economic outlook was positive, with retail spending up and business and government activity strengthening.

“It is appropriate for the RBA to continue with further policy rate normalisation,” she said.

“Moving into 2023, it is likely to become appropriate for the RBA to slow or even pause interest rate rises.

“The full impact of the monetary tightening implemented in 2022 will not be known until well into 2023, and the board will need to monitor the data carefully to ensure that they haven’t gone too far, too fast.”

The board decision will be announced at 2.30pm AEST.