Reserve bank hikes rates 50 basis points to curb inflation -
reserve bank hikes

Reserve bank hikes rates 50 basis points to curb inflation

The Reserve Bank of Australia (RBA) has hiked interest rates with the most significant increase in over two decades as it battles to restrain inflation. The central bank increased the base rate by 50 basis points, taking the rate to 0.85%.

The move has surpassed predictions and expectations from economic experts, as many had been predicting a rate rise of between 25 and 40 basis points. The entire increase has already been passed on to customers by Westpac.

Adding to the financial pressures facing homeowners


This is the second of two back-to-back rate rises that have collectively increased the base rate by 75 basis points, adding to the financial pressures facing homeowners. Compared to April, around $200 per month will be added to a $500,000 home loan due to the combined interest rate hikes.

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With inflation soaring, many are already struggling to manage rising food, travel, and energy costs, among other things. In addition, the increase in mortgage payments following the latest rate rises could leave many households struggling to make ends meet financially.

The RBA governor, Philip Lowe, said, “Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected.” He added, “Inflation is expected to increase further, but then decline back towards the 2% to 3% range next year. Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago.”

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A combination of factors impacting households

Officials have acknowledged that many people now face a challenging time ahead. Jim Chalmers, the Treasurer, said that this winter would be especially hard for some due to a combination of factors.

Chalmers stated that rising inflation, increased interest rates, and falling real wages were all to blame for the financial difficulties that many are experiencing. He added that these challenges came at a time when “our ability to respond to these challenges is constrained by the fact that the budget is absolutely heaving with Liberal debt.”

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It was also reported that the central bank would most likely have to continue looking at rate increases in the months to come, which means even greater stress for homeowners. During the Covid-19 pandemic, Reserve Bank kept the cash rate at record low levels to help the economy. However, Lowe said that monetary conditions in Australia needed to be normalised, which suggests more interest rate hikes are on the way.

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The RBA also confirmed that there had been a slide in house prices in some markets over the past few months, but they remained more than 25% higher than pre-pandemic levels. In addition, fears over higher borrowing costs are already taking their toll on the property market, with sales dropping by nearly 20% in the three months to the end of May.

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