RBA defends rate rise as mortgage holders tipped for more pain in 2023


The Reserve Bank has reserved the right to return to 50 basis point rate rises in the new year, as it delivered an alarming warning to Australian mortgage holders.

Earlier this month, the central bank pushed up the cash rate by 25 basis points to 3.1 per cent.

The minutes of the board meeting that prompted that decision, released last Tuesday, have revealed governor Philip Lowe and his fellow board members considered increasing the rate by 0.5 per cent, as well as pausing the cash rate at 2.6 per cent.

In ultimately making the decision to increase the rate by only 25 basis points, to 3.1 per cent, the board warned it “did not rule out returning to larger increases if the situation warranted” in the new year.

“The board’s priority is to re-establish low inflation, and return inflation to the two to three per cent target range over time,” minutes from the meeting read.

Inflation is currently running at 7.1 per cent in Australia.

“High inflation damages the economy and makes life more difficult for people,” the minutes state.

“The substantial cumulative increase in interest rates since May has been necessary to ensure that the current period of inflation is only temporary.

“The board is resolute in its determination to return inflation to target, and will do what is necessary to achieve that outcome.”

Before May, the cash rate had remained unchanged at the 0.10 per cent it was lowered to in November 2020.

Since May, the central bank has handed down increases to the cash rate every month, which have been promptly passed on to Australians by the major banks.

In June, July, August and September the cash rate was increased by 0.5 per cent.

In the months since, it has risen by 0.25 per cent at a time.

The RBA board noted the constant increase in the cash rate was beginning to hit mortgage holders, with those holding a loan in for more pain throughout 2023.

“Members noted the share of household income being spent on required mortgage payments would reach around its previous highest level in late 2023,” the minutes read.

A huge uptake in fixed-term mortgages which are due to end over the next 12 months will play a role in the upcoming chaos, the bank noted.

While Tuesday’s news is troubling, the central bank also noted if the situation warranted, a pause on further rate rises could be implemented.

Article Credited to Ellen Ransley, news.com.au

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