Australia stares down the barrel of another double RBA hike tomorrow

The RBA is set to hike the cash rate tomorrow, either by 0.25 or 0.50 percentage points, as the Board moves to curb inflation.

If the RBA increases the cash rate by 0.50 percentage points, as many economists predict, the average owner-occupier with a $500,000 debt and 25 years remaining will see their repayments rise by $137. This person’s total increase to date, adding up the May, June and July hikes would be $333 a month.

0.50% HIKE: Increase in repayments

Calculations are for existing customers and based over 25 years

Source: RateCity.com.au. See notes below.

If the RBA increases the cash rate by just 0.25 percentage points, their repayments will rise by $68 a month, with a total increase from April – July of $264.

0.25% HIKE: Increase in repayments

Calculations are for existing customers and based over 25 years

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA average existing owner-occupier variable rate of 2.86% and assumes banks pass the cash rate hikes on in full.

The rate hikes are not expected to end tomorrow. Westpac’s economic team is now forecasting the cash rate could increase to 2.35 per cent by the end of this year and hit 2.60 per cent by early next year.

If this happens, the same borrower with a $500,000 loan balance at the start of the hikes could see their monthly repayments rise, in total, by $685 in less than 12 months.

Potential increase in repayments by Feb 2023

Based on an owner-occupier paying principal and interest with 25 years remaining

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average variable rate and assuming the hikes are passed on in full. Calculations are based on Westpac’s current cash rate forecast.

RateCity.com.au research director, Sally Tindall, said: “Australians are potentially staring down the barrel of the steepest RBA hikes since 1994.”

“Variable rate borrowers should prepare for another 0.50 percentage point hike this month and potentially another double hike in August,” she said.

“This would be a bold move by the Reserve Bank but not at odds with action other central banks are taking to rein in inflation.

“Governor Lowe might have poured cold water on suggestions the cash rate could get to 4 per cent by Christmas, but the RBA is still likely to rip the low-rate band-aid off quickly.

“Borrowers with decent buffers in place and a pay rise in their pockets should be able to keep up with higher interest rates. However, plenty of families being hammered by both rising rates and cost of living pressures may soon find it difficult to make ends meet.

“The cash rate is forecast to increase by 2.5 percentage points in less than a year. For the average borrower with a $500,000 loan that’s a $685 monthly repayment increase.

“Borrowers should sit down and work out what a 2.5 percentage point interest rate increase would do to their monthly repayments. If that number doesn’t sit well with them, the time to take action is now.

“Refinancing to a lower rate can help inject ongoing relief into the monthly budget and keep people afloat in what is likely to be a tricky time for some families feeling the heat”.

Is it too late to fix?

“Finding a competitive fixed rate is not impossible, but it’s getting harder by the day. There is currently just one fixed rate under 3 per cent and that rate has a target on its back,” she said.

“People wedded to the idea of fixing their rate will need to move quickly and look beyond the big banks. A handful of low-cost lenders and smaller credit unions are still offering relatively competitive fixed rates, but these are unlikely to stick around for long.

“The variable rate market is a completely different story. Banks big and small are still falling over themselves to hand out discounts to ideal customers, primarily existing borrowers willing to jump ship from a competitor,” she said.

BIG FOUR BANKS: Lowest rates

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.

Lowest home loan rates on RateCity.com.au

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.

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