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Melbourne Cup rate hike near certainty, but size of hike still up for grabs
The Reserve Bank is set to fire off another cash rate hike tomorrow, with a 0.25 percentage point increase the most likely outcome.
Data out today from APRA shows household deposits hit another record high of $1.32 trillion in September – that’s a $12.99 billion increase month-on-month.
Also released today, ABS retail sales figures rose 0.6 per cent in September, slightly above market expectations. However, this is likely to be attributed to an increase in prices.
Neither of these sets of data will deter the RBA from hiking tomorrow, in an effort to curb inflation, which rose to 7.3 per cent annually in the September quarter, the highest annual increase since 1990.
Potential impact of a rate hike tomorrow
If the RBA hikes by 0.25 percentage points tomorrow, the cash rate will rise to 2.85 per cent – the highest level since the April 2013 meeting.
If this happens, the average variable borrower could see their monthly repayments rise by $74, assuming the banks pass on the hike in full to customers (see table below).
However, the RBA has hiked six times already. For an owner-occupier with a $500,000 debt at the start of the hikes and 25 years remaining on their loan, the total increase to their monthly repayments could be $760.
0.25% HIKE: Increase in repayments
| Loan size | November increase | Total increase May-Nov |
| $500,000 | $74 | $760 |
| $750,000 | $112 | $1,140 |
| $1 million | $149 | $1,520 |
Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.
The RBA may instead choose to hike the cash rate by 0.50 percentage points tomorrow, taking the cash rate to 3.10 per cent – the highest since the November 2012 meeting.
0.50% HIKE: Increase in repayments
Calculations are for existing customers and based over 25 years
| Loan size | November increase | Total increase May - Nov |
| $500,000 | $150 | $834 |
| $750,000 | $225 | $1,251 |
| $1 million | $299 | $1,668 |
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.
How does Australia compare to other countries?
The RBA is not the only central bank raising rates to curb inflation.
| Country | Official rate - start of 2022 | Official rate - now | Last change | Next meeting | Current inflation rate (p.a.) |
| Australia | 0.10% | 2.60% | +0.25% on 6/10 | 1/11 | 7.3% |
| USA | 0.25% | 3.25% | +0.75% on 21/9 | 2/11 | 8.2% |
| UK | 0.25% | 2.25% | +0.50% on 22/09 | 3/11 | 10.10% |
| NZ | 0.75% | 3.50% | +0.50% on 05/10 | 23/11 | 7.20% |
| Canada | 0.25% | 3.75% | +0.50% on 26/10 | 7/12 | 6.90% |
| Japan | -0.10% | -0.10% | -0.10% in 2016 | 19/12 | 3.4% |
| EU (main refinancing) | 0.50% | 2.00% | +0.75% effective 2/11 | 15/12 | 9.90% |
Source: RateCity.com.au. Note the ECB rates on the marginal lending facility and the deposit facility are 2.25% and 1.50% respectively.
How much further will repayments rise?
The rate hikes are not expected to end tomorrow. Both Westpac and ANZ economic teams predict the cash rate will increase to 3.85 per cent in the first half of next year.
If this happens, the same borrower with a $500,000 loan at the start of the hikes could see their monthly repayments rise, in total, by $1,059 in less than 12 months.
Potential increase in repayments by March 2023
Based on an owner-occupier paying principal and interest with 25 years remaining
| Loan size | March 2023 (cash rate 3.85%) |
| $500,000 | $1,059 |
| $750,000 | $1,589 |
| $1 million | $2,119 |
Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average existing customer 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, “A rate hike on Melbourne Cup is a near certainty, and while the most likely outcome is a 0.25 percentage point hike, there’s an outside chance the Board will revert back to a double hike.”
“The RBA won’t want to change tack back to 0.50 percentage point hikes, but last week’s surprise inflation figures might prompt it to re-think its strategy,” she said.
“If the RBA hikes by 0.25 percentage points, the average borrower would see their monthly repayments increase by more than $700 since the start of the hikes – that’s a huge amount of money to shell out every month.
“Australians are already facing the highest annual rise in the cost of goods since 1990. Throw in skyrocketing mortgage costs and it’s a double whammy for families struggling to make ends meet.
“While some families are doing it tough, many households still continue to have significant savings buffers at the ready for a rainy day, with the latest APRA data recording yet another increase in household deposits to a record $1.32 trillion.
“Households should remember that while we’re six rate hikes in, many of them have only started paying the third or fourth hike,” she said.
Disclaimer
This article is over two years old, last updated on October 31, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.
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