Reserve Bank of Australia Lifts Cash Rate to 2.35 Percent

A general view of the Reserve Bank of Australia building in Sydney, Australia, on May 3, 2022. (Brook Mitchell/Getty Images)

The Reserve Bank of Australia (RBA) has announced the fifth consecutive interest rate increase and hinted at further rises in the upcoming months.

At its board meeting on Sep. 6, the RBA decided to raise the official cash rate by 0.5 percent to 2.35 percent, the highest level since 2015.

The decision was made as the RBA board continued its commitment to bringing the annual inflation rate down to the two to three percent target band.

“It is seeking to do this while keeping the economy on an even keel,” RBA Governor Philip Lowe said.

“The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path.”

Philip Lowe, Governor of the Reserve Bank of Australia, addresses the National Press Club in Sydney, Australia, on Feb. 2, 2022. (Lisa Maree Williams/Getty Images)

Speaking about the latest rate hike, Treasurer Jim Chalmers said it would put more burden on family budgets.

“The markets had anticipated it, and homeowners were expecting it as well, but the fact that we knew it was coming doesn’t make it any easier for people,” he said at the Australian parliament.

However, he said the federal government did not interfere with the central bank’s independent decisions.

“It is our job to do what we responsibly can to help Australians deal with these pressures in the near term and to build a much more resilient economy into the future,” Chalmers said.

Mortgage Holders To Bear Higher Repayments

Meanwhile, mortgage holders are expected to bear higher repayments for their variable rate home loans as banks are likely to pass on the rate hike to customers soon.

Financial comparison website RateCity calculated that the new interest rate would cause a typical mortgage holder with a $750,000 (around US$510,000) loan on a 25-year term to pay an extra $922 a month compared to their previous repayments before rates started rising in May.

PropTrack economist Eleanor Creagh said the aggressive rate hikes had caused house prices to drop by 2.7 percent compared to their March peak.

Additionally, she expected property prices to go down even further as borrowing would get more expensive.

A billboard advertises a home for sale in Melbourne, Australia, on Sep. 6, 2022. (William West/AFP via Getty Images)

Despite the drop in the housing market, Creagh said the impact of RBA’s interest rate decisions had not spread to other economic areas.

“These conditions have allowed the RBA to continue raising the target cash rate toward their estimates of the neutral rate while monitoring the evolution of household spending as interest rates rise–a key source of ongoing uncertainty,” she said.

As interest rates and inflation continue to rise, more Australians are feeling distressed, with frontline services ranking cost of living and personal debt as the number one risk to suicide rates.

Government Promises Measures To Ease Living Cost Pressures

While acknowledging the financial stress Australians were under, Prime Minister Anthony Albanese said the government would introduce some measures to alleviate living cost pressures in the October budget.

“We will soon be preparing our first budget, and we need to address the cost of living issues Australians are facing while being mindful of the trillion dollars of debt we have inherited,” he said during a meeting.

Meanwhile, Opposition Leader Peter Dutton called on the federal government to take action to reduce cost-of-living pressures for Australian households.

“The prime minister promised on 100 occasions before the last election that the power prices of families would come down by $275. Now, he’s not mentioned that figure one day since,” Dutton told reporters.

Meanwhile, on the Green party’s side, Treasury and Economic Justice spokesperson Nick McKim said the RBA governor should resign for misleading the Australian people.

“Dr. Lowe induced hundreds of thousands of Australians into taking out massive mortgages by effectively saying that interest rates would not rise until 2024,” he said in a statement.

“Having failed to keep that commitment, he should now resign.

“Today’s rate increases will not clear supply chains or bring down energy prices, but it will smash small business, mortgage holders and renters who are not responsible for the problem.”