The RBA has announced a new rate hike

Australians have been warned more hip pain is on the horizon after the Reserve Bank delivered its interest rate decision.

Cameron Kusher, managing manager of economic research at REA Group, said the Reserve Bank of Australia was approaching the „peak” of the interest rate cycle. „Now whether that’s actually true or not, I think there’s a possibility we’ll get another interest rate hike next week and another interest rate hike after that,” he told Sky News Business reporter Edward Boyd. „But I think there’s definitely a sense that we’re nearing the end of the rate hike cycle.” In association with realestate.com.au

The central bank raised the cash rate by 0.25 percentage points to 4.10 percent — the highest level since April 2012 — at a meeting on Tuesday.

The average borrower with a $500,000 home loan could now pay $1,134, or 49 per cent, more a month before the RBA began its aggressive tightening cycle last May.

RateCity research director Sally Tindall said the data considered by the board was a „mixed bag”.

„People may be cutting back on discretionary spending now, but the monthly inflation figures did not improve the marks the RBA was expecting,” Ms Tyndall said.

He urged borrowers to make a plan now, ahead of any future increases.

„Call your bank and ask what your repayments would be if the cash rate was 4.35 percent, and start planning a new budget around these figures.

„If that budget doesn’t add up, start taking action now while you still have time on your side,” Ms Tyndall said.

In a statement, Governor Philip Lowe indicated that further interest rate hikes may be needed in the coming months.

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„We may need some further tightening of monetary policy to ensure inflation returns to target in a reasonable timeframe, but that will depend on how the economy and inflation evolve,” he said.

The increase would push rates to an 11-year high.

From May 2022, the RBA has raised rates aggressively from a record low of 0.1 per cent in an attempt to contain runaway inflation.

Monthly figures released by the ABS last week showed annual inflation rose to 6.8 percent from 6.3 percent in April. The next set of quarterly data won’t be released until next month.

But inflation remains well above the bank’s target range of two to three percent.

Dr Lowe said Tuesday’s rate hike would „provide greater confidence” that inflation would return to target „within a reasonable timeframe”.

„Inflation in Australia is past its peak, but 7 per cent is still high and will take some time to return to the target range,” he said.

„The Board remains committed to returning inflation to target and will do whatever is necessary to achieve it.”

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Creditorwatch chief economist Anneke Thomson said it was clear that inflation was „not falling fast enough for the RBA to be comfortable”.

„While overall consumer demand will definitely slow, non-mortgaging and non-renting households continue to spend on services, particularly tourism, cafes and restaurants and the health sector, making inflation more sticky in these areas of the economy,” Ms Thompson said.

„With these consumers unaffected by higher interest rates, it remains to be seen whether further increases in inflation will have an impact on services-side inflation.”

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Ahead of the meeting, economists were divided on which way the RBA would move. Financial markets showed a potential increase of about 33 percent.

However, economists flagged the Independent Pay Arbiter’s decision to raise the minimum award wage as a concern for the RBA.

Philip Lowe defended the increases at a parliamentary hearing last week. Image: NCA NewsWire / Martin Ollman

PropTrac senior economist Eleanor Krieg said a tight labor market, public sector pay rises and the Fair Work Commission decision could „fuel” inflation.

„The risk of a wage-price cycle remains a concern for the central bank,” he said.

„This prompted the RBA to raise the cash rate further, reaffirming its commitment to tackling the challenge of high inflation and inflationary expectations.”

Dr Lowe said in his report that although economic growth had slowed and conditions in the labor market had eased, they remained tight.

„Although job vacancies and advertisements are still at very high levels, companies are reporting that labor shortages have eased,” he said.

„The Board remains cautious about the risk that current high inflation expectations could contribute to large increases in both prices and wages, particularly given the low spare capacity in the economy and the still low unemployment rate.”

Graham Cooke, Finder’s head of consumer research, said the decision would come as a „shock” to many who were already struggling, according to the company’s latest cost of living survey.

„Nearly 80 per cent of Aussies are cutting back on their spending to cope with rising costs – the RBA’s latest hike would be close to 100 per cent,” Mr Cook said.

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