June 6: Australia’s central bank has delivered another blow to borrowers across the country as it hiked interest rates yet again. On Tuesday afternoon, the Reserve Bank of Australia (RBA) increased the cash rate by 25 basis points, bringing it to 4.10 per cent.

That’s a significant jump from the historic pandemic low of 0.1 per cent that Australians enjoyed for more than two years. This marks the 12th time the bank has hiked rates since May last year and has been the highest the interest rate  for the past 11 years.

Mortgage owners have been hit with a 400 basis point hike in the space of a year in what has been hailed as the fastest tightening cycle on record, as inflation stays stubbornly high. April 2023 has been the only exception, when the RBA briefly paused rates, giving mortgage holders a much-needed reprieve.

Treasurer Jim Chalmers said while he does his best to not “second guess” the RBA, the latest increase will make life for mortgage holders “much harder”. “I do expect that there will be a lot of Australians who will find this decision difficult to understand and difficult to cope,” he told reporters.

“The Reserve Bank’s job is to squash inflation without crashing the economy and they will have lots of opportunities of course to explain and defend the decision that they’ve taken today.

New data from the Bureau of Statistics found Australia’s inflation is still stubbornly high, sitting 6.8 per cent in the past 12 months ending April.

“This rate rise today is not because of the budget, and it’s not because people on the minimum wage are being paid too much,” Dr Chalmers said.

“This rate rise today is because inflation is more persistent in our economy than any of us would like, particularly in those areas that the budget has been carefully calibrated to address, whether it’s rent, energy, [or] out-of-pocket health costs.”

In a worrying trend, the RBA’s inflation target is to keep consumer price inflation between two to three per cent, which is clearly nowhere near current levels.

The RBA has warned of more pain to come, refusing to rule out future rate rises, in its policy decision handed down on Tuesday afternoon. In a statement, RBA governor Philip Lowe warned that future rate rises might be necessary.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve.” He also flagged that inflation was not at the level it ought to be.

“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” Mr Lowe said.

“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable time frame.”

He acknowledged that “high inflation makes life difficult” for everyone and that it was damaging to the economy. (Agencies)