Home Business The Reserve Bank will raise the cash rate after inflation explodes

The Reserve Bank will raise the cash rate after inflation explodes


There are fears Wednesday’s massive jump in inflation could hit mortgage repayments, with the Reserve Bank of Australia now considering raising interest rates to combat rising costs.

After reporting that the consumer price index (CPI) rose 7.3 percent last year, some experts believe interest rates could be raised by at least 0.5 percent by the end of the year, with two more meetings before 2023 . .

The Commonwealth Bank (CBA) expects the RBA to raise the cash rate by 25 basis points at its November and December board meetings to 3.10 percent.

“There’s no two ways about it – inflation is hot in Australia right now, as it is in many parts of the world, and we expect the RBA to respond by raising the cash rate again,” a CBA spokesman said.

“Indeed, our call was for the RBA to raise the rate one or two more times by 25bps and then pause for an extended period.”

A rise in the cash rate of just 0.25 per cent in November will see households pay $809 more a month on their mortgage than they did in April on a $500,000 home loan, according to Canstar.

For those with a $1 million mortgage, repayments would jump more than $1,619 for a 0.25 percent jump and $1,778 for a 0.5 percent increase.

The RBA will continue to raise the cash rate as inflation remains “uncomfortably high”, said BIS Oxford Economics head of macroeconomic forecasting Sean Langkake, ruling out a rise above 0.5 percent.

“We continue to expect a further 50 basis point tightening before the RBA pauses to assess how the economy is tracking,” Mr Langkeik said.

“This is a very strong inflationary impact.

“However, this is broadly in line with the RBA’s expectations, meaning it will have a relatively limited impact on their outlook.”

Mortgage holders will have to contend with even higher payments in the coming months as inflation pushes up the cost of essentials.

More than three-quarters of September’s 1.8 percent rise in inflation came from a jump in commodity prices, with food alone up 3.2 percent last quarter and 9.0 percent a year ago.

Fruit and vegetable prices rose by 16.2 percent last year, dairy products by 12.1 percent, with prices expected to rise due to the effects of floods.

Household spending is rising, with the average person needing a pay rise of $6,637 this year just to keep up with inflation, according to Canstar financial expert Effie Zachos.

“Budgets will be further strained by cost-of-living pressures as inflation shows no signs of abating,” Ms Zachos said.

“Household savings and emergency buffers are likely to take a hit. The government forecasts that household savings will decline from elevated levels to 3.25 percent in the June 2024 quarter. The next 12-18 months will be a storm for households to weather.”

Originally published as Fears that inflation will lead to a surge in mortgage repayments ahead of RBA interest rate announcement


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