RBA interest rates: More pain for homeowners as central bank struggles to wrangle inflation

A shocking number of mortgageholders say they will be unable to afford to meet a fifth increase in their loan repayments.

In the new Canstar survey of borrowers, renters and those who own their own home outright, 10 per cent of borrowers said they would be unable to meet the higher repayments if today’s cash rate hike materialised, while a further 28 pr cent said meeting the increase would not be easy.

Macquarie Bank was among the first of the big-name lenders to pass on the hike, but not until November 19.

While the big banks are yet to confirm they will be passing on the hike, all four are expected to do so next Friday.

The November rate hike is also expected to push the average owner-occupier variable rate to 6.74 per cent and mark the end of rates under 6 per cent.

Ms Bullock has pinned price hikes after the card surchages ban on inflation pressures, not the ban itself.

Thousands of people took to social media on the day of the ban to moan about price hikes at their local coffee shops.

But Ms Bullock said the “anecdotal” increases were higher than what the businesses were recouping in any money lost through the ban.

“Card surcharge was typically around one per cent or so of the cost,” she said.

“Some of the reports, and they’re anecdotal. I haven’t seen them, are saying that prices have been put up by much more than that.

“I don’t think it’s anything to do with surcharging. I think it’s just another manifestation. ... of the fact that demand for goods and services in the economy is higher than the ability to supply it, so businesses can put up their prices.”

Ms Bullock admits monetary policy does take time to flow through the economy, saying it doesn’t work “instantaneously”.

“We think it can take 12 months or so, or maybe a bit longer, for the full effects of it to flow through,” she said.

“We think that it is having an impact. We think the housing market, which is one part where monetary policy does have an impact, and we are already seeing that.”

She salso noted the jobless rate was still historically low and there was no sign of the economy “cracking”.

Ms Bullock has once again fallen back on her mantra that inflation does not just hurt those with a mortgage, pointing out that higher prices hurt those on the lowest incomes.

“Again, I know this interest rate rise is tough news for many households, but this is the right thing for the Australian economy,” she said.

“Raising interest rates today is necessary to slow the economy and return inflation to target. It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions across the economy, or the problem will only get worse.

“If we just let high inflation run, it will lead to even worse outcomes: much higher prices, higher unemployment, and lower growth.

“We are using the cash rate to stop that from happening.

“Some pain now will prevent even worse pain down the track. Returning inflation to target is our priority, and we will do what is necessary to achieve that.”

We’re at the post-call presser and Michele Bullock has opened up with a message for families worried about their budget.

But she also said it was not just about risisng oil prices.

“Now I know this is not the news that many Australians want to hear, but it is what’s needed to get inflation down,” she said.

“Inflation is too high, and our forecasts suggest it will stay higher for longer.

“Part of the reason for inflation staying higher for longer is global oil prices.

“However, I want to be very clear that we are not tightening monetary policy because of the direct impact of oil prices on inflation.

“I know there is confusion in the community, so I want to be very clear: monetary policy cannot impact global oil prices.”

We’ll hear directly from the RBA governor in about 15 minutes on why the board voted to increase the cash rate and pile more pressure on struggling families.

Stay tuned.

Compare The Market has crunched the numbers ... and it makes for truly terriying reading. Those with a nervous stomach, look away now.

On an average loan of $731,000, each 0.25 basis-point hike has added around $114 to monthly repayments. After five hikes, borrowers will need to find an extra $584 a month compared with the start of the year.

If the full increase applied for 12 months, those borrowers would spend roughly $7000 more on their repayments.

The comparison site’s economic director David Koch said this was an extraordinary burden on everyday Aussies trying to pay off their loans and attain the dream of homeownership.

“The Reserve Bank warned us that this could happen if inflation didn’t show some sign of stablising or easing - despite the fact that consumer confidence is almost at a record lows, business confidence is at record lows and unemployment is increasing,” he said.

“It is really hard to see is that homeowners are doing all the heavy lifting by shouldering these rate hikes, but to sympathise with the RBA – this is really the only lever they’ve got.

“That’s why I think governments have got to get on board and start helping us fight inflation. They can’t just continue being their own island, spending up big and fueling demand. And that’s governments at all levels: local, State and Federal.”

While many have criticised the Federal Government’s spending splurge and its impact on inflation, Treasurer Jim Chalmers says Labor is taking “responsibility for our part of the fight against inflation”.

“We’re helping with the cost of living at the same time as we manage the Budget responsibly and address Australia’s long-standing productivity challenge,” he said.

“We are delivering cost of living relief through the tax system, the health system, and through higher wages because we know people are under pressure.

“Budgets aren’t the primary driver of prices in the economy, but responsible economic management plays a helpful role.

“We’ve found almost $180 billion in savings since coming to Government, there have been savings in all eight of our Budget updates so far and there will be more savings in the mid-year budget update in December.”

A former RBA economist warns the latest increase to the cash rate could plunge Australia into a recession.

University of Sydney’s Luke Hartigan, from the School of Economics, said Michele Bullock’s previous narrow path strategy has not worked, and the RBA is now likely to take a more aggressive stance to taming inflation via higher interest rates.

“This could cause a recession and a dramatic increase in the unemployment rate and further falls in housing prices in early 2027,” Dr Hartigan said.

“While inflation remains outside the target band it risks inflation expectations becoming unanchored which would be very costly to correct.

“Interest rates are a blunt instrument for managing inflation. Governments, both State and Federal, can have a more targeted role in helping to manage inflation by reducing demand pressures in the short-term via increased taxation and reduced spending while also seeking to boost the productive capacity of the economy over the long-term.”

Treasurer Jim Chalmers said the hike today was expected but would be difficult to swallow for many household, who will now cop a fifth increase in their home loan repayments this year.

“It will be difficult news for many Australians who are paying a hefty price for circumstances outside of their control,” Dr Chalmers said.

“Australians are already struggling and this will stretch their budgets even further.

“The full impacts of the previous rate rises earlier this year haven’t been fully felt yet and will slow our economy further when they are.

“Today’s decision was widely anticipated but not unanimous. This is unsurprising given considerable uncertainty in the outlook and risks in both directions.”

Like the RBA, he also said renewed fighting in the Middle East could add to the uncertainty.

“The war is now in its ninth month and its re-escalation is putting sustained upward pressure on inflation, weighing on growth, and its end can’t come soon enough for the global economy.”