The Reserve Bank of Australia is predicted to once again raise the country’s interest rate, bringing more pain for mortgage holders.
A 0.5 per cent rise is widely expected to be announced on Tuesday during the RBA’s July meeting, which would bring the cash rate to 1.35 per cent.
It comes after the interest rate was dramatically lifted to 0.85 per cent in two successive hikes over May and June.
The predicted 50 basis-point increase would be the same as the rise in June, which was the biggest since February 2002.
It means an Australian who is currently paying a 3.1 per cent interest rate on their $500,000 mortgage, would pay $133 more per month following the 0.5 per cent rise.
Someone on the same interest rate with a $1m mortgage would now pay $265 more a month.
RBA governor Philip Lowe said two weeks ago an interest rate increase of 0.75 percentage points would “not be on the table”, but suggested an increase of 0.25 or 0.5 percentage points was being considered.
RateCity research director Sally Tindal said it was difficult to see the RBA not going for the 0.5 per cent increase.
“Governor Lowe has said the Board will be considering both a 0.25 percentage point hike and another double hike of 0.50 percentage points at Tuesday’s meeting,” she said.
“It’s hard to see the RBA opting for anything less than a double hike at this stage. Governor Lowe has said the RBA is prepared to do what it takes to get inflation back into the target band and hiking rates now will send a message that the RBA is on the case.
“When you consider these points, how could the RBA do anything less?”
The increases have been introduced by the RBA as a way to tackle soaring inflation rates, with Mr Lowe previously saying they have a plan and are being guided by relevant information and data.
“The higher interest rates globally will help to create a more sustainable balance between the demand for goods and services and the ability of our economies to meet that demand,” he said to the American Chamber of Commerce in Australia last month.
“As we chart our way back to 2 to 3 per cent inflation, Australians should be prepared for more interest rate increases,” he said.
“We decided to make a bigger 50 basis-point adjustment on the basis of the additional information suggesting a further upward revision to an already high inflation forecast.
“I want to emphasise though that we are not on a preset path. How fast we increase interest rates, and how far we need to go, will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”
He has previously forecast that the inflation rate, which currently sits at 5.1 per cent, will increase to 7 per cent by the end of the year.
“It is going to be some years, I think, before inflation is back in the 2-3 per cent range. Over the next couple of years, it will gradually come down,” he said.
“That is why it is important that we chart this path back there and people have confidence that we will do that.”
It comes after two of Australia’s four big banks raised their fixed mortgage rates last week in anticipation of the interest rate increase.
The Commonwealth Bank of Australia raised its rates by 1.4 per cent last Thursday, while NAB increased its rates by up to 1.1 per cent the next day.