High Inflation Is Forcing The RBA To Raise Interest Rates Again

Mortgage rates are expected to rise again for the 10th straight after the Reserve Bank board meeting on Tuesday.

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Interest rates

The Reserve Bank has raised the official interest rate in the last nine consecutive meetings, raising the cash rate from 0.1 percent in early May last year to 3.35 percent after its first meeting this year in February.

Financial markets and economists expect RBA Governor Philip Lowe to announce another quarter-point increase in the cash rate on Tuesday afternoon, while signaling even more rate hikes for the rest of the year.

This means the Reserve Bank is poised to raise official interest rates to a new 10-year high of 3.6 per cent to quell cost-of-living pressures that have forced record numbers of Australians to hold multiple jobs to make ends meet.

What's more, the March interest rate hike may not be the last one this year. The three major banks predict interest rates will receive three 0.25 percent increases in March, April and May.

If the prediction comes true, Australia will face its highest cash exchange rate in 11 years.

The main reason

The reason the RBA is raising interest rates is to keep inflation under control.

Inflation hit a three-decade high of 7.8 percent in December, well above the RBA's target rate of 2 to 3 percent.

After the first monthly meeting in February, Dr. Lowe noted that further interest rate hikes may be needed to overcome inflation.

Problems in the housing sector

Declining levels of new mortgages and home approvals show that the RBA's aggressive monetary policy tightening is causing pain across the housing sector.

Over the past week, the number of indicators suggesting problems in the housing market has increased.

According to the Australian Bureau of Statistics (ABS), home loans fell 5.3% in January, after falling 4.3% in January. in December. Over the past 12 months, they have fallen by a record 35 percent.

The number of first home buyers taking out a loan fell to its lowest level in five years. Loans to first-time buyers fell 8.1 percent in January after falling 4.1 percent in December. These loans are down 57.5 percent from their peak in early 2021 and are now 27.5 percent lower than their immediate pre-COVID level.

The decline in lending contributes to a sharp decline in home approvals, which fell 27.6 percent in January. It was the largest monthly decline since at least 1979.

If interest rates continue to rise to the projected peak of 4.1 percent, mortgage holders will be left with a very expensive bill.

While the immediate future looks bleak, both economists and banks estimate the central bank could start cutting interest rates within a year.

There are also signs that the job market is starting to cool down

Job vacancies as measured by ABS fell to 440,100 in December, down 11.2 percent or 55,100 from September's level. There was also a decrease of 0.4%. percentage of job vacancies in the entire economy.

The overall labor market remains tight, but data suggest people are struggling with cost of living pressures.

The number of people working in multiple jobs increased by 1.7 percent to a record high of 925,000, with the percentage of people working in multiple jobs increasing to 6.8 percent of all employees. The highest number of people in positions are employed in the sectors of education and training, healthcare and administrative support.