Experts criticise Reserve Bank’s latest move, but end of hikes may now be in sight

Figures from across property, economics, politics and social services have criticised the Reserve Bank’s decision to hike rates for a 10^th consecutive time.

The RBA board lifted the official cash rate by 25 basis points to 3.6% at its monthly board meeting on Tuesday – the highest level since mid-2012.

For the average mortgage holder, those rapid increases could see them forking out an extra $19,000 a year more in repayments since just last May.

Welfare groups were quick to express anger, saying Australians are being pushed into disadvantage by deepening living costs, compounded by rate hikes.

The St Vincent de Paul Society warned Australia’s most vulnerable will be punished the hardest by the RBA’s aggressive approach to inflation reduction.

“Successive blows with the blunt instrument of interest rates have inflicted serious pain on many,” the charity’s national president Mark Gaetani said.

Mr Gaetani pleaded for a halt in further rate hikes, amid the charity’s unprecedented demand from people struggling to cope.

Data released last week showed economic growth and inflation have slowed faster than expected, making the RBA’s call yesterday “hard to understand”, Deloitte Access Economics head Pradeep Philip said.

Mr Philip said the “wisdom” behind the decision was hard to fathom and warned the increase not only worsens cost of living pressures but raises the risk of an unnecessary recession.

“Unfortunately, the RBA has few other tools at its disposal to help fight inflation and has indicated further rate lifts are to come,” he said.

“We need to take a holistic look at ways to tame inflation, which necessitates a greater role for fiscal policy. In the meantime, the RBA should pause rate hikes, or it will overshoot and cruel the economy.”

Greens Senator Nick McKim was scathing in his assessment of the decision, which he labelled “institutional madness”, while the Australian Council of Trade Unions said workers will be slugged an extra $90 a month on the average $600,000 mortgage.

ACTU secretary Sally McManus said household savings are being depleted by the aggressive rate hike and broader price gouging, while real wages growth is going backwards.

“This means people are skipping meals, avoiding going to the doctor, and are dreading the next bill,” Ms McManus said.

“Real people are behind the statistics, and they are hurting.”

Lending for housing for both owner-occupiers and investors has slid almost 30% in just a year, the Real Estate Institute of Australia pointed out.

Housing affordability also declined nationwide over the December quarter, with the proportion of income needed to meet average loan repayments rising more than 44%, up 2.4 percentage points, according to the REIA Housing Affordability Report.

The RBA has shown “complete disregard” for both would-be homebuyers and tenants battling a severe undersupply of rental properties, the group’s president Hayden Groves said.

Meanwhile, new home building activity also dropped to its lowest monthly number in more than a decade, decreasing by 27.6% in January, Master Builders Australia said.

The organisation’s chief executive Denita Wawn said: “There’s more that can be done to [lower inflation], to avoid locking a generation out of homeownership and exacerbating our housing supply and affordability challenges,” Ms Wawn said.

“Accordingly, to allow for the full impact of these ongoing increases to be realised, we believe that interest rate increases should either be paused in April or consider that any further rate adjustments be more finely tuned with increases of no more than 10 to 15 basis points.”

Mortgage Choice broker Terri Unwin says the rate rise will not have surprised many, but the pain could be widespread.

“It’s definitely getting tighter,” Ms Unwin said.

“The group it will impact the most are the ones coming off the fixed rates at 1.99%. No one could foresee that the rates would jump 3% higher, particularly in such a small period of time.”

But the end of the tightening cycle could be in sight.

Commonwealth Bank economist Gareth Aird said the language used this week by RBA governor Philip Lowe shifted from the more hawkish rhetoric in last month’s statement, keeping the door open for a potential pause in rate hikes in April.

“This change does not preclude the RBA from raising the cash rate more than once from here,” Mr Aird said.

“But it means the board is not convinced it needs to hike the cash rate multiple times.”

The CBA expects one further 25 basis point hike, likely in April, for a peak in the cash rate of 3.85%.

Resource: realestate.com.au