Interest rates: Reserve Bank announces Australia cash rate hike
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Australian home borrowers have been crushed with a ninth consecutive interest rate hike with the Reserve Bank raising the cash rate to a new 10-year high of 3.35 percent.
Reserve Bank Governor Philip Lowe looked relaxed as he left his luxurious Sydney home on Tuesday and prepared to inflict more pain on millions of Australians by raising interest rates for the ninth straight month.
Dr. Lowe, 61, predicted in 2021 that interest rates would stay at record lows through 2024.
But since then, borrowers with an average mortgage of $600,000 have seen their payments increase by a staggering $12,000 a year.
Before the crucial meeting, Dr. Lowe was seen leaving his Randwick home in the city’s east, where the median home price is $2.9 million.
Just steps from Coogee Beach, the property with its park-like garden and wrought-iron fence would conservatively be worth at least $4 million.
The married father of three was photographed with a copy of The Australian Financial Review before setting off in his latest model Volvo XC40.
The Reserve Bank governor left his luxurious Sydney home for a board meeting where interest rates were expected to rise for the ninth consecutive month.
Philip Lowe was seen getting into a Volvo XC40 SUV, even the most basic model starting at $53,000
Unlike millions of other borrowers, the powerful banker, who has a total compensation package of $1,037,709 and a base salary of $890,252, is largely shielded from the worst cost-of-living crisis in more than three decades.
His wife now works at the Australian Prudential Regulation Authority, which sets the rules on bank lending as rates continue to rise.
The Dr. Lowe Reserve Bank board is widely forecast to raise the cash rate on Tuesday by 0.25 percent.
But the Commonwealth Bank, Australia’s biggest home lender, is warning borrowers to expect a potential 0.4 percentage point rise that would bring the cash rate to 3.5 percent.
Inflation is at its worst level in 32 years and there are fears that this rate hike is far from the last.
Since May, the RBA has raised interest rates eight times, with the 300 basis point increases in 2022 marking the most severe monetary policy tightening since a target cash rate was first published in 1990.
The Dr. Lowe Reserve Bank board is widely expected to raise the cash rate on Tuesday afternoon for the ninth straight month, with January being the only month they don’t meet.
Philip Lowe, a father of three, lives in the wealthy southeast suburb of Randwick, where the median home price is $2.9 million.
Dr. Lowe apologized to homeowners who applied for home loans based on his forecast that rates would not increase for several years.
“I am certainly sorry if people listened to what we said and acted on what we said and are now sorry for what they did,” he told a parliamentary committee in November.
“That’s unfortunate and I’m sorry it happened.”
The end of the record 0.1% cash rate means that borrowers with an average mortgage of $600,000 would have seen their monthly payments this month rise to $3,303, $997 up from $2,306 in early May.
Even if rates didn’t increase any further after February, this borrower’s annual payments would be $11,964 higher than they were before the rate increase.
A couple with a $1 million mortgage would have seen their monthly payments increase by $1,661, from $3,843 to $5,504, which works out to $19,932 for one year.
That’s based on a Commonwealth Bank variable rate, for a borrower with a 20 percent deposit, rising to 5.22 percent in February from 2.29 percent in May 2022 before the rate increases. within 30 years.
Canstar finance expert Steve Mickenbecker said rising mortgage rates were causing the biggest pain in the family budget.
His home with a park-like yard would be worth considerably more, likely worth more than $4 million.
Dr. Lowe, who has a total compensation package of $1,037,709 and a base salary of $890,252, is shielded from the cost-of-living crisis
“There is no line in the family budget that hurts borrowers more than the home loan,” he said.
Inflation in the year to December rose to 7.8 percent, a level well above the Reserve Bank’s 2-3 percent target.
The futures market expects the cash rate to peak at 3.7 percent in July, a level well below Westpac and ANZ forecasts for a 3.85 percent cash rate.
AMP Capital chief economist Shane Oliver said raising rates as high as 4.1 percent, as the futures market had recently predicted, would trigger a severe recession.
“We are close to the cap on rates and taking the cash rate to 4.1 percent or higher would be a policy mistake that would risk a major recession,” he said.