On the same day the Australian Football League (AFL) signed a 7-year broadcast deal worth $4.5 billion, highlighting the big money deals done at the big end of town, homeowners will once again be tightening their belts after the latest interest rate rise.
The ASX turned down on news of the cash rate rise, losing its early gains.
The S&P/ASX200 dropped 22.50 points or 0.33% to 6,829.70. Over the last five days, the index has lost 2.41% and 9.28% over the last 52 weeks.
Bottom-performing stocks were Super Retail Group Ltd (ASX:SUL) which lost 5.83% and Codan (ASX:CDA) Ltd down 4.74%.
On the flipside, Whitehaven Coal (ASX:WHC) Ltd continued its winning run up 3.42% today. Whitehaven has more than doubled its share price so far this year on the back of energy prices.
What’s making news today
Rates rise another 0.5%
Struggling mortgagees will feel the pinch once again after the Reserve Bank of Australia hiked rates another 0.5% or 50 basis points to 2.35%.
The rise is the fifth consecutive cash rate hike and is likely to further drive house prices down, whilst adding to the soaring cost of living.
The 2.25% rise since April has placed consumer confidence at levels comparable with the last recession.
Rates have now risen at their fastest pace since 1994 and with unemployment at its lowest level since 1974 and retail spending still high, it is likely more rises are on the horizon.
David Plank, head of Australian Economics at ANZ, told Canstar that in his view, 50 bps hikes could well continue into October and November.
“The data will be critical,” he said.
“If the labour market stays strong, which is what we expect, then further 50 bps moves after September are more likely.”
Today's move by the RBA was once again explained as a measure to bring down inflation to the 2% to 3% target.
“The board expects to increase interest rates further over the months ahead, but it is not on a preset path,” RBA Governor Philip Lowe said.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”
Dr Lowe said: “The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments.
“The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, recent declines in some commodity prices and the impact of rising interest rates.
“The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy. Price stability is a prerequisite for a strong economy and a sustained period of full employment.”
According to PropTrack senior economist Eleanor Creagh, borrowing capacity will be reduced along with housing values.
“The level of interest rates will be a key factor of housing market conditions and the pace and depth of home price falls in the period ahead,” she said
“However, the lagged effect of rate rises, the large share of variable rate borrowers ahead on repayments and some borrowers on fixed terms yet to expire, means many mortgage holders have not yet felt, or are only now beginning to feel, the impact of the initial rises.”
RateCity.com.au research director Sally Tindall believes the RBA will hike rates between two and five times more.
“The average borrower could see their variable rate rise to over 6% in a matter of months, unless they take action,” Tisdall said.
As for investors Russell Investments director Institutional, Australia, Daniel Greyling said, “The RBA continues to try and grapple with rising inflation, after today's interest rate rise. Today's increase marks the fifth hike in as many months and signals the immense inflationary pressures which are having ramifications for investors, particularly those with cash flow obligations, like Not-For-Profit investors.
“Not-for-profit organisations such as schools, churches, universities and charitable organisations, often have a sizeable pool of capital to invest for their future. These portfolios often target a return over inflation, which becomes very difficult to achieve when inflation is rising, and the organisation’s expenses are also increasing as the cost of doing business increases.
“Trying to grapple with the implications of this environment on an investment portfolio, is complex at the best of times, let alone when an organisation doesn’t have a substantial in-house investment team to navigate the environment. Losses in fixed income, a traditional portfolio diversifier, and a lag in the return of term deposits, are two examples where investors may need to pivot their portfolio to protect them against inflation.”
“Once again. it isn’t a surprise to anyone.
“But the fact that we knew it was coming doesn’t make it any easier for people.
“This is tough. This will tighten the screws on family budgets. This will put more pressure on a lot of Australians who are already stretched enough.
“Interest rate rises to mean that Australians will have to make more decisions about how to make ends meet. It also means more difficult decisions for governments.”
Treasurer Jim Chalmers was sympathetic but there is little the government can do.
“The fact that we knew it was coming doesn't make it any easier for people," Chalmers said.
"This is tough.
“This will tighten the screws on family budgets. This will put more pressure on a lot of Australians who have already stretched enough.”
The move by the RBA has been criticised by some, including economists and Greens senator Nick McKim who reminded the RBA of its statement that interest rates wouldn’t rise until 2024.
“Hundreds of thousands of people were induced into taking on massive debts on this basis,” Senator McKim said, adding that the RBA has “smashed” homeowners and renters with a series of rate increases, and saying that, in his opinion, the federal government ought to look to policy measures to curb inflation.
“The RBA needs to be upfront with the Australian people,” he said.
For some struggling homeowners and those who bought houses on the belief that they had until 2024 to settle into their mortgage, Dr Lowe’s statement must seem a lifetime away.
Markets are pricing the cash rate to hit 3.2% by the end of the year, before peaking at 3.8% in July 2023.
At the current rate, households with a $1 million mortgage will pay $1,229 more per month than they were in May.
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