The Reserve Bank of Australia has increased up the cash rate for the first time since November 2010, as inflation has surged to a 20-year high.
If passed on in full by banks, the rate rise will add $65 a month to repayments on a $500,000 mortgage, and double that on a million-dollar loan.
The move has come two years earlier than the Reserve Bank of Australia (RBA) expected in its forecasts last year, as inflation has accelerated, surging to 5.1 per cent for the year to March, while underlying inflation hit 3.7 per cent.
It is also the first movement for the cash rate since November 2020, when the RBA slashed it from 0.25 per cent and began broad quantitative easing. The last time the rate increased was more than a decade ago, in November 2010.
Previously, the central bank had indicated that it would not raise until annual inflation was “sustainably” within its target range of 2 to 3 per cent, which would have required annual wages growth to rise above 3 per cent.
The average owner-occupier with a $600,000 debt and 25 years remaining on their mortgage will see repayments rise by around $74.
In making his historic decision, RBA Governor Dr Philip Lowe said he was aware of the central bank’s role to play in controlling inflation.
David Plank, ANZ’s head of Australian economics, said the 25-basis point increase “ended up surprising everyone”.
“The move is at the hawkish end of the spectrum,” Plank said. “This reflects the RBA’s elevated inflation forecasts.”
These predictions includes the headline inflation to reach 6% by the end of 2022, with core or underlying inflation at 4.75%. In March, the latter came in at 3.7%.
The ANZ said another increase at next month’s board meeting of 40 basis points to 0.75% “seems a distinct possibility”, Plank said.
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