The Reserve Bank has raised the cash rate by 0.25 percentage points to 3.6%, the highest level since May 2012, and though this hike has been widely expected by the market, one broker said there were growing concerns that the central bank “has potentially already gone too far.”
“The latest cash rate hike – the 10th consecutive increase since May last year – has pushed interest rates to their highest level in more than a decade,” said Louisa Sanghera (pictured above left), Zippy Financial director and principal broker.
“However, a number of economic indicators have started to skew softer, with rising unemployment, underwhelming wages growth and GDP, plus, home lending finance has fallen by a staggering 35% in the past year.
“While it is economically prudent for inflation to be curtailed, the Reserve Bank appears to have taken a sledge-hammer approach, rather than showing a modicum of patience – even for a month or two – after February’s rate hike to analyse the impact of higher rates on consumer spending and the wider economy.
“The consensus amongst economists is that the cash rate may have already been pushed too far, but it appears that possibility – as well as the pain being felt by mortgage holders – is falling on deaf ears at the Reserve Bank board table.”
RateCity.com.au analysis showed that if lenders pass on the 0.25pp hike to customers, as expected, the average owner-occupier with a $500,000 loan and 25 years remaining will see their repayments increase by $77.
“The tenth hike in as many meetings means Australians can largely kiss goodbye mortgage rates starting with a ‘4’,” said Sally Tindall (pictured above right), RateCity.com.au research director.
“After this latest hike washes through, a small handful of lenders are likely to hold on to rates just under 5%, but we’re likely to be able to count these loans on two hands.
“Meanwhile, the average owner-occupier who hasn’t renegotiated since the start of the hikes will be on a variable rate of 6.36%. This latest hike is going to pack a punch for many families, who could be forced to make some tough decisions.”
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