The Reserve Bank of Australia has flagged the possibility of returning to 50 basis point rate hikes in 2023, as it brought alarming news for already struggling mortgage holders.
Earlier this month, RBA’s latest 0.25% hike took the cash rate to a 10-year high of 3.1%.
Minutes of the Dec. 6 policy meeting, released on Tuesday, showed Governor Philip Lowe and the rest of the RBA board weighed lifting the rate by 0.5% as well as pausing the cash rate at 2.6%, news.com.au reported.
In ultimately deciding to increase the rate by only 25 basis points, the RBA board warned it “did not rule out returning to larger increases if the situation warranted” in the new year.
“The board’s priority is to re-establish low inflation and return inflation to the 2-3% target range over time,” minutes from the meeting read.
Inflation currently sits at 7.1% in Australia.
“High inflation damages the economy and makes life more difficult for people,” the minutes said. “The substantial cumulative increase in interest rates since May has been necessary to ensure that the current period of inflation is only temporary. The board is resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Before the cash rate hikes started in May, the OCR had remained unchanged at the 0.1% since November 2020.
Since May, eight rate hikes have been handed down by the central bank, which have been promptly passed on to bank consumers.
In June, July, August, and September the cash rate was raised by 0.5%; then by 0.25% at a time in the months since.
The RBA board noted the successive cash rate increases were starting to hit mortgage holders, who would likely have it tougher in 2023 as they feel the full impact of the hikes and the continuing high cost-of-living.
“Members noted the share of household income being spent on required mortgage payments would reach around its previous highest level in late 2023,” the minutes read.
Also playing a role in the upcoming chaos, the bank said, was a huge uptake in fixed-term mortgages which are due to end over the next 12 months.
Despite the troubling news, RBA also noted that if the situation warranted, the board could also put a halt on further rate rises, news.com.au reported.
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