RBA's high five of rate hikes

The RBA cash rate looks set to move past 3 per cent in months ahead; while the average Western Australian home loan inked in April will now cost $610 more per month after five consecutive rate hikes.

The Reserve Bank of Australia raised the nation’s benchmark interest rate by 50 basis points to be 2.35 per cent today.

That marks the first time the central bank has lifted rates five times consecutively, making this the harshest tightening cycle since 1994.

Mortgage Choice says that the average new home loan in the state was about $471,000 in April.

The broker estimates that the 225 basis point increase in interest rates since May would mean the average borrower from April would be paying $610 more per month.

Nationally, the average monthly repayment would be up $791, Mortgage Choice said.

The ASX-traded Cash Rate Futures Index shows investors are forecasting a peak of as much of 3.8 per cent in July 2023.

Ray White Group chief economist Nerida Conisbee said Australia would probably still be in for a few more increases before rates start to stabilise.

Ms Conisbee said supply chain blockages appeared to be easing, and crude oil prices had fallen 30 per cent since June 2022.

Those factors would put downward pressure on inflation.

The most recent price data showed national inflation was 6.1 per cent in the 12 months to June, with Perth posting the highest rise of any capital city at 7.4 per cent.

The central bank’s inflation target is between 2 to 3 per cent.

RBA Governor Philip Lowe said inflation was expected to increase further in months ahead.

“There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy,” Mr Lowe said.

That was despite the global economic outlook deteriorating. 

“The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy,” Mr Lowe said. 

“Price stability is a prerequisite for a strong economy and a sustained period of full employment. 

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

How far to go?

The move sparked debate as to whether the RBA should slow down.

"Today's aggressive RBA decision brings us much closer to the terminal rate of interest and, we believe, puts further pressure on an already rapidly decelerating Australian economy," Franklin Templeton Fixed Income portfolio manager Chris Siniakov said.

Job service Indeed APAC economist Callam Pickering said the RBA had little choice but to tighten.

“And they’ll continue to do so until inflation is under control or genuine cracks begin to appear across the Australian economy,” Mr Pickering said. 

“Households and businesses should prepare for a cash rate of at least 3 per cent by year end.”

He said the battle against inflation has only just begun.

“It would come as no surprise if they hiked rates at their three remaining meetings this year, with tightening likely to continue over the first half of 2023.”

Trade surplus

The rise comes after strong consumer confidence and trade data this morning.

“Australia recorded its 13th consecutive current account surplus in the June 2022 quarter, the longest period on record,” the Australian Bureau of Statistics said. 

That means the country is exporting more than it is importing.

“The balance on goods and services increased $16.3 billion to reach the highest balance on record, driven by strong export prices," the ABS said. 

“The terms of trade rose 4.6 per cent reaching its highest level on record.”