Homebuyers face rising mortgages and interest rates are expected to rise further
The decision by the RBA board has intensified the political fight over economic management with less than three weeks to go before the election.
Morrison refrained from saying sorry Australians are facing higher costs and said the country should trust the Coalition to manage the economy after the election.
“I sympathize with Australians as they face higher cost of living pressures. I sympathize with Australians as they face higher reimbursements for their homes. Of course I do,” said the Prime Minister.
“That’s why we provided the aid and the budget. This is the function of our strong economic plan.
But shadow treasurer Jim Chalmers said the Coalition had no plan for the economy after the election as Australians faced soaring inflation, rising interest rates and falling real wages .
“The difference between government and Labor under Anthony Albanese is that we will do whatever we can to grow the economy in the right way,” Mr Chalmers said on Tuesday.
“It’s a tough day for Australians. It’s another aspect of Scott Morrison’s triple whammy in his cost of living crisis, falling real wages, rising interest rates and spiraling out of control of inflation.
The RBA governor has revealed cost of living pressures are likely to increase in the coming months, saying inflation will hit 6% and not return to the top of the bank’s 2-3% target before mid-2024.
Lowe said while inflation was being pushed up largely by international factors, there were issues in Australia’s economy at stake.
“Domestic capacity constraints are playing an increasingly important role and inflationary pressures have widened as businesses are better prepared to pass cost increases through to consumer prices,” he said.
Speaking to reporters, Lowe said he did not believe rising interest rates would dampen the economy.
“There’s a lot of positive momentum (in the economy), so I think the momentum is unlikely to be lost,” he said.
“It’s good news: I know a lot of people don’t like rising interest rates, but it’s a reflection of the underlying strength of the economy that we can get out of these bad situations. ’emergency.”
AMP chief economist Shane Oliver expects the interest rate to hit 1.5% by the end of the year and 2% by mid-2023, slowing the growth in house prices.
“Banks are likely to pass on the RBA rate hike in full to their floating rate customers, and deposit rates will start to rise as well,” he said.
ANZ’s Australian economics chief David Plank said the Reserve would likely follow Tuesday’s rate hike with an even bigger increase in June, and that a 0.4 percentage point move to a rate of 0.75% was “a distinct possibility”.
KPMG chief economist Dr Brendan Rynne said Australia would likely see “a succession of 0.25% rate hikes over the next few months” on top of Tuesday’s hike.
NAB economists also expect steady increases in the cash rate over the next year.
But people shouldn’t be too concerned about the destination of interest rates, said EY chief economist Cherelle Murphy, given how quickly local and international factors could change the economy.
“What [the RBA] will certainly be that they will continue to monitor situations as they unfold and slow down the economy to the extent that they think it needs to be slowed down, but they are not going to slow growth unnecessarily .
Higher interest rates were good news for Australian savers, said CommSec chief economist Craig James: “And certainly more Australians have been hoarding money in recent years.”