Interest rates

Cash rates: Interest rates set to rise with RBA meeting

The RBA is set to raise interest rates again at its meeting next week as economists warn Australians to tighten their financial belts.

Economists are calling on the Reserve Bank of Australia (RBA) to raise the cash rate for the second time in as many months at its meeting on Tuesday, after the body raised interest rates to 0.35% in May – the first increase in more than a decade.

Rates were cut to an all-time low of 0.1% in November 2020, but a higher-than-expected rate of inflation prompted the RBA to spring into action last month to try to quell rising costs for goods and basic services.

Now, as the June RBA meeting looms, PropTrack economist Paul Ryan has called on the central bank to raise the cash rate by 40 basis points, a move that would raise the official cash rate at 0.75 – still well below the recorded 5.1% inflation rate. earlier this year, the highest since the introduction of the Goods and Services Tax (GST) in the Howard era.

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“Financial markets are implicit that the cash rate will be over 2% by the end of the year – this means that the cash rate should be increased at every meeting by December,” Mr. Ryan at news.com.au.

“We have major banking forecasters who believe it will be closer to 1.75%. It’s less about how they get there and more about how high the rates will go.

Mr Ryan warned that a higher cash rate would not necessarily lower inflation either, with higher prices resulting from what he called external “shocks” in the market.

“Issues such as supply chain issues due to severe lockdowns in China and the war in Ukraine are key factors here,” he said.

“These are things that interest rate increases are not going to alleviate because they are not demand-driven inflation.

“Rising interest rates are dampening demand – that’s what the RBA should be responding to, and to be fair, that’s what they have been.”

Those most affected by the interest rate hike would be mortgage holders with variable rate home loans, with a 0.75% cash rate set to raise monthly payments for the second time in as many months .

“There are so many households with high debt levels that it’s going to have a big effect on budgets across the country,” Ryan said.

“An increase in the cash rate will now have a greater impact on slowing consumption than in the past.”

After last month’s hike, RBA Governor Philip Lowe warned consumers that rates could eventually top 2%. If this happens, repayments on a $1 million mortgage would increase by more than $1,000 per month.

“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” he said in a post-meeting statement to the era.

“This will require a further rise in interest rates over the coming period.

“Over time, it is not unreasonable to expect interest rates to reach 2.5%.”

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