At its first meeting of the year,the Reserve Bank board lifted the official cash rate by 0.25 of a percentage point to a fresh 10-year high of 3.35 per cent – the ninth consecutive increase since it began tightening monetary policy in May last year.
Economists are concerned the Reserve Bank runs the risk of a recession with future interest rate rises amid signs households are reducing expenditure even before the full effect of previous rate increases is felt.Fairfax
The higher interest rates will add to growing housing affordability issues which,despite the recent fall in property prices,have worsened over the past year.
Economists are concerned the Reserve Bank runs the risk of a recession with future interest rate rises amid signs households are reducing expenditure even before the full effect of previous rate increases is felt.
Reserve Bank governor Philip Lowe said the board recognised it took time for rate rises to be fully felt by mortgage holders but revealed the bank was seeing signs they were starting to bite.
“Some households have substantial savings buffers but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living,” he said.
Despite that,Lowe said the bank would do what it could to return inflation to its target range of 2-3 per cent. Inflation over 2022 reached 7.8 per cent,the.
“The board expects that further increases in interest rates will be needed over the months ahead,” Lowe said.
Treasurer Jim Chalmers said each interest rate rise increased pressure on households as well as the economy. However,he said it was not the government’s job to interfere in the operation of the independent Reserve Bank.
“Inflation is unacceptably high,there is no use pretending otherwise,” he said.
ANZ was the first major lender to pass on Tuesday’s interest rate rise. On a mortgage of $750,000,the increase will add $116 to monthly repayments. Since the Reserve started lifting rates,the monthly repayments on a $750,000 mortgage will have climbed by almost $1400.
Economists said the increase – with more to come – heightened the risk of a recession this year.
Commonwealth Bank’s head of Australian economics,Gareth Aird,said the RBA appeared to have made up its mind that more rises were coming,underestimating the lagged effect of its previous hikes.
Aird believes the RBA will have to cut interest rates by half of a percentage point by year’s end because of the hit being taken by consumers.
As rates rise,Labor is confident the worst of inflation is behind us but there are many policies that will take months to have an impact.
“Two further[0.25 percentage point] interest rate hikes means the probability of a soft landing for the economy is lowered significantly,” he said.
Deloitte Access Economics lead partner Pradeep Philip said the RBA was running the risk of crashing the economy,which is now expected to grow just 1.5 per cent a year through 2023 and 2024.
“Far from a soft landing,the RBA now risks missing the runway altogether,” he said.
Shadow treasurer Angus Taylor said the lift in interest rates meant families with a mortgage were working extra hours and giving up holidays while for renters,the dream of home ownership just got harder.
“This is a very scary time for so many Australians and what makes it even scarier is that we heard today from the governor that there are multiple increases yet to come,” he said.
Greens’ treasury spokesman Nick McKim said Chalmers should take the unprecedented step of asking Lowe to resign and to reverse the most recent rate rise.
“The RBA is failing in its duty to ensure the economic prosperity and welfare of the people of Australia,” he said.
On Wednesday,the Property Council will launch a discussion paper on how affordability has deteriorated and the failure at all levels of government to deal with it.
The paper found 81 per cent of Australians believed there was a lack of affordable property in their area.
Half of renters said they had no option but to rent because of the cost of property and almost three-quarters said the size of house deposits would prevent them from buying a home in the next five years.
The council’s chief executive,Mike Zorbas,said housing affordability was only second to cost-of-living pressures as a concern for most Australians.
“We have to change things up. We can’t afford another decade of failure,” he said.
The council believes the new Housing Supply and Affordability Council,the legislation for which will be introduced to federal parliament this week,should release public scorecards that rank the states and territories on reaching their housing supply targets.
It also wants the new affordability council to publish supply and demand forecasts,along with measures of rental affordability.
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