The first of the big four banks has made a move after Australia’s Reserve Bank hiked interest rates once again.
The RBA met on Tuesday and lifted the cash rate by 25 basis points to 4.1 per cent — the highest level since April 2012.
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It marks the 12th interest rate hike since May last year, when the cash rate was at a pandemic-low of 0.1 per cent.
Australia’s inflation rate remains stubbornly high – reported at 6.8 per cent in the 12 months to April.
The hike means the average borrower with 25 years remaining on a $500,000 loan will be hit with an increase of roughly $73 to their monthly repayments.
Westpac became the first of the big four banks to move on the change, announcing shortly after 5pm it was passing on the increase in full.
Home loan variable interest rates will increase by 0.25 per cent per annum for new and existing customers, effective June 20.
“We understand interest rate increases put more pressure on household budgets. The majority of our customers are managing OK, but we know with each rate change it’s getting more challenging,” said Westpac chief executive Consumer and Business Banking Chris de Bruin.
“We’re reaching out to some customers who may need additional support and have competitive rates available for those rolling off fixed loans to make the change easier.
“For customers in financial difficulty we are here to help and encourage them to call us early if they’re concerned.”
“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” RBA Governor Philip Lowe said.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.
“High inflation makes life difficult for people and damages the functioning of the economy.
“It erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality.
“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”
The RBA maintains there is a “narrow path” to returning Australia to the target inflation rate of between 2 per cent and 3 per cent without damaging the economy.
To accomplish this, Lowe warned that further hikes may be necessary.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.
“The board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
Treasurer Jim Chalmers said the news would make life “much harder for people with a mortgage”.
“The Reserve Bank makes these decisions independently and I do my best not to second guess them. I do expect there will be a lot of Australians who will find this decision hard to understand and hard to cop,” he said.
Chalmers said the rate rise was not reflective of the recently handed-down federal budget.
“This rate rise today is because inflation is more persistent in our economy than any of us would like, particularly in those areas that the budget has been carefully calibrated to address,” he said.
“Whether it’s rent, whether it’s energy, whether it’s out-of-pocket health costs — we have acted decisively in the budget around a month ago to address the cost of living pressures in our economy without adding inflation.”
The Greens called for the government to intervene, saying the RBA was “engaging in a war on young people”.
“Instead of leaving it to the RBA who will always use the one blunt instrument that they have, Labor should be dealing with the cost-of-living crisis by freezing rents, taxing super profits and the super rich, and putting dental into Medicare, wiping student debt, and raising income support,” Greens Treasury spokesperson Senator Nick McKim said.
“Jim Chalmers should also step in and use the powers that he has under Section 11 of the RBA Act to overrule the RBA to freeze interest rates.”
7NEWS Finance Editor Gemma Acton said on Monday that hundreds of thousands of households would have the daunting task of refinancing their loans this year, as rates continued to jump.
“This year 880,000 households will see their fixed loans expire,” she said.
“Now, given that were already halfway through 2023, some have already had to refinance.
“But for some others that pain still lies ahead.
“Many will be moving from rates under three or even 2 per cent up to rates of 5-6 per cent, in other words either hundreds or thousands more dollars to stump up every single month.”
Meanwhile, the big four banks have already made their predictions for the next few years of cash rate movements.
RateCity last week cited the banks as predicting the average owner-occupier could be hit with a variable home loan rate of 7.11 per cent in 2023.
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