The Reserve Bank could hike the cash rate a further 0.25 percentage points in the next few months, potentially as early as next Tuesday, as inflation proves hard to tame, according to RateCity.com.au.
In a mixed bag of results, the latest monthly CPI figures from ABS showed annual inflation climbed from 6.3% in March to 6.8% in April, largely driven by the halving of the fuel excise a year ago, while categories such as rent and travel remained high.
“A lot of households had been hoping there would be a light at the end of the tunnel sometime soon,” said Sally Tindall, RateCity.com.au research director. “However, these inflation figures suggest there are many more tough months ahead for Australian families battling with the soaring cost of living and rising rates.”
“What we saw last month was an RBA board, resolute in its determination to get the job of taming inflation done. [The latest] inflation figures suggests that work may not be over,” she said. “Inflation in Australia has remained stubbornly high in some categories and there’s every chance the RBA will hike rates again, as early as next Tuesday, to stay firm on its course.”
By potentially lifting the cash rate to 4.1%, either on Tuesday or in coming months, the move will take it to the highest level since the April 2012 meeting.
Another 0.25pp hike would mean the average borrower with a $500,000 loan before the hikes started in May last year could soon see an additional $1,134, or a total 49% rise, in their monthly repayments.
See the table below from Ratecity.com.au on how a 0.25pp hike would impact monthly repayments.
Note: Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.
“Borrowers should plan for one, if not two more rate hikes over the coming months,” Tindall said. Call your bank and ask what your repayments would be if the cash rate gets to 4.35% and start planning out a new budget around these figures. If that budget doesn’t add up, start taking action now while you still have time on your side.”
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