Man Huynh

Man bought a home last year expecting rates to stay low. The RBA’s string of rate rises has left him struggling

PHOTO: Man Huynh said he was told to expect no more than a percentage point of rate increases when he purchased his first home in October 2021.(ABC News: Rhiana Whitson)

The Reserve Bank has increased interest rates for the fourth month in a row, raising its cash rate target by half a percentage point.

The RBA has now lifted its benchmark interest rate by 1.75 percentage points since its first rate rise in May, with the cash rate target sitting at 1.85 per cent.

In his post-meeting statement, Reserve Bank governor Philip Lowe said the latest rate rise was unlikely to be the last this year.

Reserve Bank

Homeowners beware: Reserve Bank of Australia issues a chilling warning that will have all mortgage holders worried

“The board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path,” he 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.

“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

Woman in suit stands in front of Westpac corporate signage
Besa Deda is the chief economist for St George Bank and Westpac Business Bank.(ABC News: Daniel Irvine)

St George Bank chief economist Besa Deda said the Reserve Bank had already raised rates faster than any time since 1994, but she expected more.

“We think their cash rate could have a 3-handle on it by the end of this year, because inflation is running at its fastest rate since the early 1990s,” she told The Business.

“We are expecting that the Reserve Bank will deliver rate hikes for every board meeting until February next year.”

‘Real risk’ of recession

Mr Lowe acknowledged that would be a difficult task.

“The board places a high priority on the return of inflation to the 2-3 per cent range over time, while keeping the economy on an even keel,” he warned.

“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments.”

The managing director of EQ Economics and former ANZ Bank chief economist, Warren Hogan, warned that a recession was a “real risk” if the Reserve Bank raised interest rates too fast.

“I think they just need to be patient with this tightening cycle and try and get this inflation under control over a couple of years, rather than rush it and try and get it done within a year,” he cautioned.

He also told the ABC’s AM program that many of the threats to the economy were partly of the Reserve Bank’s own making.

In particular, he singled out the RBA’s statements until late last year that interest rates were unlikely to rise from near-zero until at least 2024, which he said lured many people to borrow too much money.

“I think the first home buyers are the ones who have the most significant grievance,” he told AM.

“When they first start that, they’re the most vulnerable to higher rates. And to be told by the central bank that rates will stay where they are, no matter how much conditionality they put on it, that nuance is lost on the broader community.

“And now they’re staring down the barrel of the most significant tightening of monetary policy in the modern era.”

Play Video. Duration: 3 minutes 52 seconds
The Reserve Bank’s rationale behind fourth successive hike

Figures from RateCity show the latest rate rise, if passed on in full by banks, will add another $140 a month to repayments on a $500,000 home loan.

Since rates started rising on May 3, someone with a $500,000 loan would be paying $472 a month more if their bank had simply matched the RBA moves.

‘It’s gonna be rough’

Man Huynh is one of those first home buyers struggling with the unexpected surge in mortgage repayments.



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