RBA interest rates live updates: Reserve Bank boss Bullock says war, petrol pain not reason for hike

Housing prices were already moderating in some parts of the east coast before today’s rate hike, but Perth’s property market remains red hot.

So, what will higher monthly repayments mean for the housing outlook?

Oliver Hume Property Group’s chief Economist, Matt Bell, said he expects new house and land purchasing activity to slow until there is some stabilisation in the outlook for rates.

He said this effect would be bigger in the most rate-sensitive market in the country, Sydney, but would be felt everywhere.

“Those hot markets like Perth, Brisbane and Adelaide will slow faster than previously expected, and any increase in the current soft dwelling price growth in Sydney and Melbourne will be muted,” he said.

“One mitigating factor for the new land market is that the impacts we’ve already seen from the changing rates outlook have been stronger in the more expensive suburbs, with outer greenfield regions holding onto established price gains longer while Inner and Middle rings have paused.

“This will help new house and land markets, especially when the underlying drivers of new housing remain in place.”

Even still, rising rates will give all property markets some pause,” Mr Bell said.

“We’ve just released our forecasts for house price growth for 2026, and those markets where we expect improvement will have to deliver it in the second half of the year.”

Click here to see how much more you’ll pay on your mortgage

The hardest rate-rise cycle in a generation took the official cash rate to 4.35 per cent in November 2023.

It stayed there until December the following year.

Will we return to those levels?

PIMCO head of Australia portfolio management Adam Bowe said the decision to lift rates today is pulling forward future anticipated tightening of monetary policy in response to the recent energy price shock, rather than signalling an elongated hiking cycle.

“If the RBA chooses to tighten policy modestly further to bring inflation down more quickly, we do not think they will need to lift the cash rate beyond the prior peak of 4.35 per cent,” he said.

“The current energy price shock is different to that experienced in 2022 on several dimensions. Most importantly, it is not occurring in conjunction with a significant positive demand shock as was the case when the world was emerging from the pandemic.

“The growth outlook prior to this energy shock was much more balanced, with looser labour markets, lower inflation, and monetary policy that was already on the tighter side of neutral.”

When asked by a reporter about the pressures already facing households, Ms Bullock said she was not going to tell families how to manage their budgets.

She acknowledging this was “tough news” for those with a mortgage, while noting the pain everyone was now feeling at the bowser.

But she said if the board did not work to reduce the demand in the economy, businesses would simply build in the extra costs “so it would be even worse for everyone”.

“I personally cannot tell people how to manage their finances but I do undertsand it’s going to be tough for some people and ... with fuel prices and this additional rise in mortgage rates is going to be hard for some people. I do understand that.

“But it’ll be much worse if inflation gets built into the fibres ... then we will see the costs of everything going up, and that will be a much worse outcome.”

Federal Treasurer Jim Chalmers says the RBA’s decision was “unsurprising”, but would still hit households hard.

“We say to Australians around the country who are hearing about this news of an interest rate increase, who dealing with some of these global pressures at the petrol bowser, that we know that those pressures are real,” he told reporters in Canberra.

“ … we will do what we responsibly can to respond to them.”

He said the Government had been addressing cost-of-living relief, which included tax cuts and cheaper medicines.

He said the Middle East conflict was a significant issue.

“The impacts of what we’re seeing in that part of the world are already substantial, but we don’t know yet how enduring those very substantial economic pressures will be,” he told reporters.

Ms Bullock said there was a “robust” discussion before the board eventaully voted five-to-four to lift rates 25 basis points to 4.1 per cent - back to where they were set in April last year.

She said holding until May would have given the board more time to consider the incoming data on inflation and the labour market and “perhaps” provide more clarity on the conflict in the Middle East.

“But the discussion was very much centred around the timing of a rate increase,” she said.

“All members agreed that another rate increase was needed to address domestic inflationary pressures.”

RBA governor Michele Bullock says there was “slightly” more demand in the economy, even before it made its decision to hike rates.

She acknowledged the oil supply problems caused by the Middle East war and threats of rising energy costs.

“Higher petrol prices will add to inflation, but they’re not the reason for today’s decision,” she said.

“Inflation was already too high, reflecting the fact that demand is outstripping supply. Higher fuel costs will not slow demand on their own to address this.

“If we do not act, these price pressures will spread and the eventual adjustment would be harder.”

Today’s rate hike means a family with a $500,000 mortgage paying a variable rate of 5.42 per cent will need to find an addtional $79 a month.

Add that to February’s increase, that’s another $158 a month.

For a household with the same terms but a $750,000 loan, that’s an extra $118 and $237, respectively.

So, where is the extra dosh coming from?

A recent survey by Compare the Market showed that to make extra repayments, families will have to:

• Dip into savings: 15 per cent
• Spend less on clothing and accessories: 22 per cent
• Reduce spend on eating out and takeaway meals: 21 per cent
• Sacrifice social activities: 19 per cent
• Delay big-ticket purchases: 16 per cent

The comparison site’s economic director, David Koch, said homeowners should prepare for more hikes this year.

“That means knowing your rate, and doing some leg work to make sure you’re not paying more than you need to,” he said.

“More than a third of mortgageholders we surveyed don’t even know their rate, which is far too many. If you’re one of them, you could be missing out on better deals without even knowing it.

“Start a conversation with your lender, because there are small steps you can take right now that could make a big difference if rates rise again.”

VanEck’s head of investments and capital markets Russel Chesler says today’s hike will be a blow to every homeowner, but the real pain may be yet to come.

He said while the decision was widely expected, markets are already building in as many as two additional increases this year, potentially taking the cash rate to around 4.6 per cent.

“In our view, that outlook assumes oil prices remain structurally higher for an extended period, which may not materialise,” Mr Chesler said.

“Oil shocks linked to geopolitical events typically prove temporary and often have the opposite effect on inflation caused by reduced commercial activity.

“Australian consumers are already feeling the impact at the petrol pump, and sentiment has deteriorated sharply.

“In that environment, the risk is not runaway inflation but a slowdown in demand. We think that ultimately limits how far the RBA can push rates higher this cycle.”

When it comes to taming inflation, the RBA has but one level to pull - and that’s to stop households spending by shifting more of their income into mortgage repayments.

It’s a disproporionaty unfair system, especially given those same household are also being hammered at the pump.

But Bullock and Co. have never shied away from inflict more pain in the name of economic stability.

If you’re a homeowner, here’s how much extra you’ll need to find each month ...

Today’s policy decision was made by majority - five members voted to increase the cash rate target by 25 basis points to 4.10 per cent, four members voted to leave the cash rate target unchanged at 3.85 per cent.