Australian households are staring down the barrel of a fourth interest rate hike, adding further pressure to budgets already buckling under the weight of sky-high fuel prices.
That pain at the bowser has been compounded by the soaring cost of just about everything as the Reserve Bank remains steadfast in its resolve to fight runaway inflation.
Hold or raise, here’s what today’s call could mean for you ...
ASX tread water ahead of rates call
The S&P/ASX200 is up just one point as investors sit on the sidelines and await the Reserve Bank’s next move.
The index was sitting at 8680.7 at 12.30pm AEST, held in the green but a massive 4.5 per cent leap in IT stocks.
Energy, real estate, utilities and banking stocks all lagged, with health care, miners and consumer discretionaries making marginal gains.
If households aren’t spending, who is?
Money man David Koch may have hit the nail on the head last week when he said millions of bruised and battered households are “likely to be handed a bill they did not run up”.
Ms Bullock is at pains to say each time the official cash rate is increased to fight inflation that rising costs hurt everyone.
What’s not acknowledged is that the pain the RBA applies isn’t proportional.
Everyone pays the same for fuel, groceries, insurance and everything else that now costs more. But every rate rise hits just a third of the population that is unlucky enough to have a mortgage.
So what’s the source of this growing inflation?
Kochie, as economic director at Compare the Market, in an open letter to Ms Bullock and Co believes it’s time for a little honestly and he wants the board to “look closely at who generated that worryingly high level of growth”.
“It wasn’t households,” he said, adding a “meaningful slice” of inflation as it stands “it not being generated in a shopping centre. It is being set in a cabinet room”.
“Households complied. Governments didn’t seem to. Yet only one of those two gets the higher interest rate bill,” he wrote.
Consider these facts he lays out.
Read more here ...
Don’t be a slave to your bank, make them earn your business
Lenders - pardon the pun - bank on a mortgageholder’s complacency.
The hassle of phoning your bank and going round after round to squeeze just a 25 basis-point cut out of them seems more a chore than an exercise in saving a few dollars.
But those few dollars add up. Take a look at this from Canstar ...
Its research shows an owner-occupier who took out a new mortgage five years ago and hasn’t renegotiated their loan since, will land on a variable rate of 7.18 per cent if the RBA hikes today and their bank passes it on in full.
By switching to a highly competitive rate of 6.24 per cent, this borrower, assuming they have $600,000 remaining on their loan, could potentially save over $10,000 in the next two years, even when factoring in $1150 in switch costs, says Canstar.
With property sales falling, banks are again scrambling to not only find new customers, but also hold on to the ones they have.
The banks aren’t losing money in this rate hike cycle.
Don’t let yourself pay a loyalty tax without them having to earn your business.
With or without a hike today, a simple phone call could keep your family’s head above water.
One and done? Don’t count on it
As painful as just one more rate hike would be today, homeowners fear the Reserve Bank could still tighten the screws further.
ANZ economist Sophia Angala said persistent underlying inflation and the re-escalation of the conflict in the Middle East and higher oil prices had increased the risk of follow-up rate hikes.
“As a result, we expect the RBA to raise the cash rate by 25bp in both September and November 2026,” Ms Angala said.
Money-saving expert Joel Gibson said economists’ predictions would be a painful blow for households who had already exhausted ways to cut back their spending.
“We’re in uncharted territory now if we get any more rate hikes because it hasn’t been this high since I think 2011,” Mr Gibson said.
“There’s a whole iteration of borrowers who’ve never seen rates this high.
“A lot of people are already at their limit in terms of what they can possibly find to cut their spending, to save money wherever possible.
“But if rates keep going up, some people unfortunately just won’t be able to afford their mortgage.”
No choice but to raise rates to ‘maintain credibility’
While financial markets are pricing in a 90 per cent chance the Reserve Bank will hike today, one expert says is a certainty if the central bank wants to maintiain its credibility.
RBC BlueBay Asset Management portfolio manager Malin Rosengren said the RBA held rates unchanged in August on the concession that if any upside risks to inflation materialised it would have to respond.
“July inflation data indicate both headline and trimmed-mean inflation remain elevated and show signs of strong momentum and widening breadth, and household spending continue to boom,” Ms Rosengren said.
“While there was a modest loosening in the labor market, it doesn’t seem to be enough to soften demand.
“At this point it should appear evident to the RBA that policy is not yet restrictive enough.
“If they fail to hike at the September meeting the market will turn to price in more inflation premia across the curve as the bank’s credibility will be tarnished.”
Treasurer points fingers ahead of rates call
If you’re looking for someone to blame for your soaring mortgage and petrol costs, look no further than Donald Trump and his war with Iran.
That’s the message this morning from Treasurer Jim Chalmers who has diverted criticism away from Labor Government spending to the crisis in the Middle East.
“Obviously, people are already under very substantial pressure, and an interest rate rise would add to the pressure that a lot of Australians are feeling,” Dr Chalmers told the ABC.
“From my point of view, from the Government’s point of view, we recognise the independence of the Reserve Bank, and we’re focused, on our part, in the fight against inflation, which is to manage the Budget responsibly, provide cost-of-living relief in an ongoing way, and also to deal with some of these longer-term challenges in our economy.”
During his appearance, he blamed inflation rates, in part, on conflict in the Middle East.
UNSW economics professor Richard Holden told ABC radio that Dr Chalmers was sidestepping responsibility for inflation.
“To blame this rate rise or potentially next month’s rate rise on what’s going on in the Middle East is just wrong,” he said.
“That is the Treasurer gaslighting Australians.”
How much more you’ll pay if rates rise today
A hike in the official cash rate today to 4.6 per cent will take homeowners back 15 years to 2011.
Back then, according to figures from banking watchdog the Australian Prudential Regulation Authority, the total value of residential mortgages was $1.05 trillion.
Today, it’s $2.51tr.
A 25 basis-point will add $91 to the monthly repayments for a borrower with a $600,000 loan and 25 years remaining at the start of this year’s hikes, says comparison site Canstar.
However, across what would be four hikes for the year, that’s an increase of $364 to monthly repayments and over $500 extra a month for anyone with $825,000 debt or more, again assumes 25 years remaining, Canstar says.
If banks pass on a hike today in full, it will push the average owner-occupier variable rate to 6.49 per cent.
Canstar says that’s when you need to start crunching the numbers, shopping around for a better deal and calling you’re bank to negotiate.
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