RBA confirms ‘more interest rate hikes are coming’

There’s more bad news for the countless Aussie families already tightening their belts, with months of pain ahead all but guaranteed.

The Reserve Bank of Australia has warned that more interest rates hikes are on the horizon, as Australia’s economic crisis ramps up.

On May 3, the Reserve Bank of Australia announced the first official interest rate hike since 2010, revealing it would lift the cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.

The historic rate rise was announced in response to skyrocketing inflation, which has reached an annual rate of 5.1 per cent and has sent prices climbing at the fastest rate in two decades.

It also marked the first rate rise during an election campaign since 2007, when John Howard was defeated by Kevin Rudd.

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Now, new details from the RBA’s May Board meeting have prompted the Commonwealth Bank to sound the alarm over looming rate rises, predicting rate hikes of 25 basis points in June, July, August and November 2022 and February 2023, with the cash rate expected to hold at 1.60 per cent for the rest of 2023.

However, CBA noted the size of the June hike could depend on wages and labour force data, due to be released this week.

The CBA also revealed the RBA had been weighing up a 15 basis point lift, 25 basis point lift or a 40 basis point lift at the May meeting, but that ultimately, the board tossed up between a 25 or 40 basis point lift, before settling on 25 points as a “shift back to historical practices after the pandemic”.

But chillingly, CBA warns that the “mere discussion of a 40bp move means it cannot be ruled out, particularly if, once again, data surprises on the upside”.

“The RBA has shown from the decision in May that they are willing to change the play book based on the incoming data, both from official sources and the RBA’s liaison program,” CBA added.

In a recent press conference, RBA governor Lowe expressed his “hope” a cash rate of around 2.5 per cent would be both neutral and achievable.

Banks respond to rate hike

All of Australia’s banking juggernauts responded to this month’s historic rate rise within hours.

The Commonwealth Bank was first to react to the RBA’s bombshell, matching the RBA and lifting its home-loan variable interest rates by 0.25 per cent.

CBA, which is Australia’s largest bank and has a quarter of all home loans in the country, said the increase would come into effect from May 20.

ANZ followed suit shortly after CBA, announcing it would also pass the full amount on to home loan customers from May 13.

Westpac later announced it would also follow and increase home loan variable interest rates by 0.25 per cent for new and existing customers from May 17.

And the morning after the announcement, NAB became the final “big four” bank to respond, confirming its standard variable home loan as well as its reward saver bonus interest rate would increase by 0.25 per cent from May 13.

Ahead of the RBA announcement, ANZ, NAB, and Westpac had all predicted a 0.15 per cent raise at the start of May, while the Commonwealth Bank had been expecting a rate rise in June, after the federal election was behind us.

All four were caught off guard by the central bank’s decision to increase the cash rate by 25 basis points, a scenario few insiders saw coming.

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