RBA pulls trigger on December rate hike

MORTGAGE holders will be feeling the squeeze this Christmas, with the Reserve Bank delivering another 25 basis point interest rate hike.

The final interest rate lift for 2022 takes the cash rate to 3.1 per cent – the highest level since 2012 – and marks the eighth hike in a row.

The RBA has been lifting interest rates since May to tackle rising inflation by increasing the cost of borrowing money to cool demand for goods and services.

Governor Philip Lowe said inflation was still too high, rising by 6.9 per cent over the year to October.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” Dr Lowe said in a statement.

The RBA’s target for inflation is a band between two and three per cent.

Despite some speculation that the RBA was approaching the end of its tightening cycle, Dr Lowe again said he expects further interest rate increases but also stressed “it is not on a pre-set course.”

“It is closely monitoring the global economy, household spending and wage and price-setting behaviour,” he said, pointing to key sources of uncertainty informing its monetary policy response.

The 0.25 percentage point hike was broadly expected, with evidence of a tight labour market and decent wages growth building the case for one more hike before the end of the year.

The fact that the central bank board does not meet in January also added weight to the December hike, because it acts as a natural pause. For mortgage holders with variable-rate loans, the 25 basis point lift will ratchet up their monthly repayments.

Numbers crunched by RateCity show repayments increasing by $1251 since May for the average $750,000 loan with 25 years remaining.

RateCity research director Sally Tindall said people should prepare for rates to rise further next year.

“If you can’t afford these higher repayments, put your budget under the microscope to see where you can make cutbacks,” she said.

-BY POPPY JOHNSTON/ AAP