Today’s rate hike plays straight into Anthony Albanese’s hands just three weeks before the election, political analysts say.
Back in November, Scott Morrison said petrol prices, electricity prices and interest rates would rise under Labor as he described himself as a superior economic manager.
But his argument could be damaged by today’s rate hike to 0.35 percent, which will boost mortgage payments for thousands of families – after inflation hit a 21-year high of 5.1 percent.
The last time interest rates rose during an election campaign, Liberal Prime Minister John Howard (left) was ousted after 11 years in 2007
The last time interest rates rose during an election campaign was just before Liberal Prime Minister John Howard was ousted from office in 2007 after 11 years.
Although the RBA sets interest rates independently, Mr Howard apologized to the Australian public.
“I do not like this and would like to say to Australian borrowers affected by this change that I am sorry and for the additional burden this is placing on them,” he said.
Mr Morrison dismisses parallels with Mr Howard, pointing out that interest rates were above 6% in 2007 and before today were at an all-time low of 0.1%.
He has blamed inflation on global supply chains and the war in Europe, insisting Australia’s economy is in better shape than comparable wealthy nations.
But voters will see rising food bills and now rising mortgage payments when they go to the polls on May 21.
Prime Minister Scott Morrison visits Palamara Village Fruits on day 23 of the 2022 general election campaign in Melbourne
Mr Albanese has blasted the coalition for implementing measures to keep wages low over the past nine years and insists only he has a plan to deal with the pressure on the cost of living.
Labor will make childcare cheaper, amend industrial relations laws to raise wages and claim its energy policy will cut utility bills – although this is disputed.
Mr Morrison’s spin doctors say the rate hike will help the coalition by drawing attention to the economic headwinds ahead. The coalition traditionally sees the economy as its core strength.
But analysts doubt voters feeling the pinch will see it that way.
“This is a full-blown cost-of-living crisis overseen by Scott Morrison and now rate hikes are part of the pain,” Shadow Treasurer Jim Chalmers said.
The Reserve Bank shocks Australia by raising interest rates by a QUARTER per cent, with another SEVEN coming this year, dealing a major blow to the Prime Minister and EVERY homeowner: Here’s the first rise in 11 YEARS for you
By Stephen Johnson
The Reserve Bank of Australia has hiked interest rates for the first time in 11 years in a bid to curb rising inflation – surprising financial markets with a stronger-than-expected hike.
The cash rate is up 0.25 percentage point, ending the historic era of a record low 0.1 percent cash rate and marking the first rise since November 2010.
It was also much larger than the 0.15 percentage point increase expected by financial markets, threatening hopes of Prime Minister Scott Morrison’s re-election ahead of the May 21 election.
The official interest rate is now 0.35 percent – the highest since March 2020, when the pandemic began – after inflation rose 5.1 percent in the year to March – the fastest pace in 21 years.
The central bank’s move is also the first in an election campaign since November 2007, when former Liberal Prime Minister John Howard lost power.
Governor Philip Lowe said: “The economy has shown resilience and inflation has risen faster and to higher levels than expected.”
The Reserve Bank of Australia has hiked interest rates for the first time in 11 years to curb rising inflation (pictured at an auction in Sydney’s Hurlstone Park).
Three of Australia’s big four banks – ANZ, Westpac and NAB – expect the Reserve Bank to hike interest rates to 2% by 2023 as interest rates rise seven more times, with potential further pain in June.
dr Lowe also expects the era of low wage growth that began in mid-2013 to be over this year, after last year’s announcement of weak wage increases could help the RBA maintain interest rates “at the earliest” until 2024.
“There are also signs that wage growth is picking up,” he said.
“Given this and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions.”
More than 1.5 million borrowers will be eligible for a variable increase for the first time as the monthly payments on a typical $600,000 mortgage increase by $78.
St. George, owned by Westpac, was the first bank to announce an increase in variable mortgage rates.
“We are currently reviewing our variable interest rates following the RBA cash rate decision,” it said.
‘We will keep you informed of any changes here.’
The benchmark interest rate rose 0.25 basis points, ending an historic era of a record low of 0.1 percent and marking the first hike since November 2010. It was also much larger than the 0.15 basis point increase expected by financial markets
Last month, the RBA forecast an increase in the cash interest rate to 2% – a level not seen since May 2016 – which would cause Australian house prices to plummet by 15%.
CoreLogic Research Director Tim Lawless expects house prices in Sydney and Melbourne to fall 15 percent in the coming year as interest rates continue to rise.
“Most of the declines will be concentrated in those two cities because that’s where affordability is greatest and they’re also likely to face demographic headwinds just from interstate migration that really favors the smaller states,” he told Daily Mail Australia.
“The counterargument to that is that as we see overseas borders open up, we’re going to see more migration, but that generally feeds into rental demand rather than buying demand.”
Brisbane, Adelaide, Hobart and Canberra, as well as regional areas of coastal New South Wales, southern Queensland and northern Tasmania are likely to see smaller declines of five to 10 percent.
“These markets tend to be a bit more isolated, in part because affordability isn’t quite as high,” Lawless said.
These markets are more affordable than Sydney and Melbourne and would continue to benefit from professionals moving there who can work from home.
A 15 percent fall in Sydney’s median home price from $1.417 million would bring values back to $1.204 million — where they were mid-last year.
A drop of the same magnitude in Melbourne would see the median home price drop from $1.001 million to $850,787, the lowest since May 2017.
But with an unemployment rate of just 3.95 percent, the lowest since 1974, Mr Lawless said forced sales were unlikely.
“This will likely be more of a lack of demand and people looking to sell will need to adjust their price expectations,” Lawless said.
A 0.25 percentage point increase will cause the monthly payments on a typical $600,000 mortgage to increase by $78 from $2,306 to $2,384.
That’s based on a bank passing on the RBA hike in full, raising a popular floating rate from 2.29 percent to 2.54 percent.
