Key Points
- The Reserve Bank will announce its July cash rate decision at 2.30pm on Tuesday.
- The RBA has already raised the official interest rate 12 times in the past 13 months.
- Experts say July's decision is likely to be a "close call".
Mortgage holders across the country are anxiously waiting to find out whether the Reserve Bank of Australia (RBA) will hike the nation’s official interest rate again on Tuesday afternoon.
The central bank's board will deliver its verdict at 2.30pm on Tuesday, and experts say it faces a difficult decision whether to raise the cash rate for the 13th time in just 14 months as it seeks to tackle inflation, or to pause and leave the official interest rate at 4.10 per cent.
Here are some of the factors the RBA will take into account, and how much further rate rises could cost borrowers.
What’s the case for another cash rate hike?
The RBA faces a “balancing act” in its bid to bring down inflation without “knocking the economy into recession”, AMP chief economist Shane Oliver told SBS News.
The July decision is likely to be a “close call”, but ultimately Mr Oliver expects the RBA to lift the official cash rate by another quarter of a percentage point — a widely expected outcome that would take it to 4.35 per cent.
RateCity research director Sally Tindall agreed that the RBA’s rates decision will be “line-ball”, but believes signs are pointing to another hike due to the central bank’s desire to curb inflation.
“They have made it very clear that the longer the RBA takes to rein in inflation, the more difficult the job will be and costly,” she said.
“So with that determination factored in, I think the scales are tipping ever so slightly to a hike.”
The RBA raised Australia's cash rate to 4.10 per cent in June. Source: SBS News / Ken Macleod
The monthly CPI figure is a measure of inflation that includes statistics about prices for categories of households expenditure
Mr Oliver said the RBA would “still regard the inflation numbers as being too high”, as it seeks to return to its target range of 2-3 per cent.
Rising wages and a rebounding property market - with prices rising for the past four months on average nationally according to CoreLogic - could also all factor into an RBA rate hike call.
The monthly Consumer Price Index (CPI) indicator rose 5.6 per cent in the 12 months to May 2023, according to the latest data from the Australian Bureau of Statistics (ABS). Source: SBS News / Kenneth Macleod
Other factors, including a rise in retail sales and falling unemployment, also “give the RBA cover to fire up another hike”, Ms Tindall said.
Mortgage holders should plan for “at least two more rate hikes” by the RBA this year, she said.
“It is far better to be over-prepared when it comes to the mortgage rather than falling short or not being able to meet your monthly repayments,” Ms Tindall said.
Mr Oliver also expects the RBA will announce another two rate hikes before the end of the year, in either July or August, and September, predicting the at 4.6 per cent.
“As we go into the latter part of the year, it's going to become increasingly clear that the Reserve Bank has done more than enough and the economy is wilting,” he said.
“As we go into next year, the Reserve Bank will start to cut interest rates, probably from February … But obviously there's a fair way to go to get to that point.”
What could cause the RBA to pause?
With some signs inflation is softening and the economy slowing, another rate rise in July is far from certain.
The ABS’ monthly CPI indicator of 5.6 per cent for May was significantly lower than the 6.1 per cent expected by many forecasters, which could give the RBA reason to consider holding the cash rate steady in July according to Mr Oliver.
“You could argue that we did some lower-than-expected inflation data last week. The Reserve Bank has already done a lot with another four hikes this year alone,” he said.
“So there is a case for them to pause to better assess the impact of those moves.”
There is also “increasing evidence that inflation has peaked and that the economy is also starting to struggle under the weight of all the interest rate hikes”, Mr Oliver said.
The RBA’s rate rises are “having markedly different impacts around kitchen tables across the country”, Ms Tindall said.
“The problem is while many households are already in severe financial stress, others are still spending at the shops or stashing extra cash in the bank,” she said.
“If the RBA continues with its determination to do what it takes to tame inflation, then we could see the cash rate rise to 4.35 per cent.
“However, if the Board is looking for a reason to pause, there’s enough in this month’s data to warrant one.”
How much more will home loan holders pay if rates rise?
Since May 2022, the RBA has executed “one of the fastest, most substantial rises to the cash rate that we've seen in Australia's history”, with many borrowers “buckling under the weight of those hikes”, Ms Tindall said.
Three of the four major banks - Westpac, NAB and ANZ - have predicted that the RBA will raise rates in July and again in August, with the Commonwealth Bank the only big four bank predicting just one more rate rise this year.
Source: SBS News
Source: SBS News
If the RBA increases the cash rate by 0.25 percentage points in both July and August, taking it to 4.60 per cent, borrowers will be paying 55 per cent more on their minimum monthly repayments compared to May 2022, the research found.
For a $500,000 mortgage, that would mean an average increase of $1,288 a month compared to May 2022, with monthly repayments rising from $2,335 to $3,623 if the cash rate hits 4.60 per cent.
