Rate carnage continues in March as RBA delivers 0.25% hike

Households that are already teetering on the brink are set to be squeezed further this month, following the Reserve Bank’s decision to hike interest rates by another 25 basis points. 

The decision brings the cash rate to 3.60 per cent — 350 basis points higher than it was 12 months ago and the highest it’s been since 2012.

In his post-meeting statement, RBA Governor Philip Lowe was clear that more tightening was necessary to address the inflation challenge, but softened his messaging around how high rates were likely to go.

“In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” he said.

Lowe also reiterated comments made during his two appearances in Canberra last month, saying there was a need to get on top of inflation now or risk a prolonged period of economic turmoil.

“High inflation makes life difficult for people and damages the functioning of the economy. 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,” he said.

It’s very likely the RBA realised its hawkish pivot last month came at an awkward time. Since February’s rate decision, a number of key economic indicators have come in softer than both the RBA and markets were anticipating.

The monthly consumer price index, though a somewhat volatile measure, fell from 8.4 per cent in the 12 months to December to 7.4 per cent in the year to January.

Annual wages growth also came in at 3.3 per cent at last reading, rather than the 3.5% the RBA was expecting, prompting CommBank economists to declare that there is no threat of a wage-price spiral.

“The recent data indicates that the RBA may now be tightening policy into an economy that is already showing sufficient signs of softening from an output, prices and employment perspective,” said CBA head of Australian economics Gareth Aird ahead of today’s meeting.

There’s also mounting evidence that spending has slowed down as the dual shock of higher interest rates and rising costs of living weigh on household budgets.

Indeed, today’s decision will increase the monthly repayment amount on a $600,000 mortgage by around $92. Combined, the RBA’s ten rate hikes will have piled on around $14,172 a year in extra repayments.

Change in mortgage repayments

Previously, the RBA had estimated that a cash rate of 3.6 per cent would leave 15 per cent of variable rate borrowers with no spare cash after they had made their mortgage repayments and paid all bills.

Even more troubling, a survey conducted by Mozo at the beginning of this year found that 73 per cent of mortgage holders believe their budgets wouldn’t hold out if rate rises continued beyond May.

Property prices stabilised in February 

The property market has been one of the more obvious casualties since the tightening cycle began. But the pace of decline steadied last month with CoreLogic recording just a 0.14 per cent drop nationally.

Sydney almost single-handedly kept the market afloat, posting a 0.3 per cent rise in dwelling values (0.7% among the top end of the market). All other capital cities excluding Hobart saw prices fall by less than half a per cent.

But PropTrack senior economist Eleanor Creagh said the downturn is expected to regain momentum in the months ahead as further rate hikes erode buyer confidence.

“Tight supply was a contributor to the rise in home prices throughout February, but with additional rate rises on the horizon, borrowing costs will continue to increase and maximum borrowing capacities will be further reduced, with home prices likely to continue declining as interest rates move higher,” she said.

Which banks have increased rates?

We’ll be keeping track of which lenders have increased rates as word comes in. To see how your lender’s rates stack up against others in the market, visit our home loan comparison page.