Treasurer Jim Chalmers has conceded Tuesday is “another difficult day for Australian home owners” after the Reserve Bank lifted the official cash rate by another half a percentage point.
Dr Chalmers said Tuesday’s widely anticipated rate rise, which will add $140 to the monthly repayments on a typical $500,000 mortgage, would “sting” families and force them to make difficult financial decisions.
“It’s not a shock to anybody, but it will still sting,” the Treasurer said of the bank’s fourth consecutive rate hike.
“Families will now have to make more hard decisions about how to balance the household budget in the face of other pressures like higher grocery prices and higher power prices and the costs of other essentials.”
The RBA has now increased the cash rate by a total of 1.75 percentage points in just four months.
As a result, someone with a typical $500,000 variable-rate mortgage will soon be paying $472 more every month than they were paying before the first rate hike in May.
“Obviously, higher interest rates primarily affect mortgage holders, but there’s a broader economic impact as well,” Dr Chalmers told Parliament.
“There’s an impact on economic growth, which I talked about in the ministerial statement last week.
“There’s also an impact on the budget. It means that the $1 trillion of debt that the previous government left us gets even more expensive for us to service.”
Dr Chalmers said the Labor government would tackle inflation by offering “responsible cost-of-living relief”, addressing issues affecting the supply side of the economy, and removing from the federal budget “the rorts and the waste” that he said characterised the previous Coalition government.
His comments come a week after he delivered a formal economic statement to Parliament in which he conceded Australians were unlikely to enjoy real wage increases until next financial year at the earliest.
Shadow treasurer Angus Taylor said the government had yet to deliver a plan for the rising cost of living and Australians were “paying the price”.
“In the absence of a plan from the Albanese Government to deal with rising inflation and interest rates, Australians will get a plan from the Reserve Bank,” he said.
“That plan will be to raise interest rates even further and Australians with a mortgage will pay the price.”
More rate hikes to come
Economists had widely expected the RBA to hike rates by another half a percentage point after annual inflation hit a 21-year high of 6.1 per cent in the June quarter.
The Reserve Bank is hiking rates in the hope that this will encourage households to spend less money and that this will put downward pressure on inflation.
In a statement after the bank’s monthly board meeting, RBA governor Philip Lowe said it was likely to lift rates higher but had no set plan and would be guided by incoming economic data.
“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” Dr Lowe said.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
Westpac and ANZ have predicted the RBA will keep lifting rates until the cash rate hits 3.35 per cent.