Interest rate hikes blow out mortgages by $1000 a month

Homeowners are being warned to brace for at least two more interest rate rises, after Wednesday’s highest inflation surge in 32 years virtually cemented the first for the RBA board.

Latest data released by the Australia Bureau of Statistics Wednesday found a “stronger than market expectations” rise in the Consumer Price Index in the fourth quarter of 2022 (+1.9 per cent), pushing the annual rise out by 7.8 per cent.

“Annually, the CPI rose 7.8 per cent, with new dwellings (+17.8 per cent), domestic holiday travel and accommodation (+19.8 per cent) and automotive fuel (+13.2 per cent) the most significant contributors,” ABS head of prices statistics Michelle Marquardt said.

“The annual increase for the CPI is the highest since 1990,” she said, making it four quarters in a row that rises were “greater than any seen since the introduction of the Goods and Services Tax (GST) in 2000”.

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RateCity research director Sally Tindall said RBA was “unlikely to leave the cash rate on hold for two months in a row”. Picture: Tim Hunter.

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RateCity.com.au research director Sally Tindall said the numbers meant “the RBA has little choice but to serve Australians with yet another cash rate hike”.

“After a break in January, the RBA is unlikely to leave the cash rate on hold for two months in a row. Australians are now looking down the barrel of the ninth rate hike since May of last year,” Ms Tindall said.

“If this happens, the average borrower with a $500,000 debt at the start of the hikes could be looking at a total increase in their monthly repayments of almost $1000. Scraping together that much extra each month will be a real test for many families.”

She said a $500,000 loan size would see a $76 hike if there was a 0.25 percentage point cash rate rise by RBA in February, making it the total mortgage repayment increase between May and February $908.

A $750,000 mortgage would see $114 added to repayment costs, making its total May to February rise come in at $1,362, she said, while a $1m loan size would see $152 extra added for the month – a rise of $1,816 since RBA started hikes last year.

Someone with a $750,000 loan would have absorbed a repayment rise of $1,362 due to interest rate rises between May to February if RBA goes ahead next month with a cash rate rise. PICTURE David Clark

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Ms Tindall said all four big bank economic teams expected the RBA to hike by 0.25 percentage points at February’s meeting, with CBA expecting rises to stop there at a 3.35 per cent cash rate, NAB looking at it stopping in March at 3.6 per cent, and both ANZ and Westpac predicting a peak of 3.85 per cent in May.

TD Securities senior rates strategist Prashant Newnaha said “RBA has more work to do to get on top of inflation given quarterly CPI data revealed accelerating services inflation”.

He said the trimmed mean CPI inflation coming in “well above the RBA’s forecasts” locked in a 25 bps hike next month to a 3.35 per cent target cash rate”.

There is no chance now that RBA will hold the cash rate at 3.1 per cent, according to TD Securities. Picture: NCA NewsWire / David Swift

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“We are reluctant to read too much into the stronger monthly Dec CPI print. We stick with our terminal rate call of 3.60 per cent by March.”

“Any idea of the RBA pausing at 3.10 per cent will have to be put on ice.”

A CBA Economics statement out Wednesday maintained “RBA will lift the cash rate by 25bp at the February Board meeting to 3.35 per cent”.

“The RBA had expected inflation to peak at 8.0 per cent by the end of 2022. (Wednesday’s) headline inflation data was a little below their expectations. But the trimmed mean printed stronger than their forecast.”

CBA Economics believes RBA will be “pausing in their tightening cycle at the March Board meeting” but said “the risk sits with a further rate hike at the March Board meeting”.

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