Australian mortgage holders are bracing for more financial pain with the Reserve Bank of Australia (RBA) warning interest rates could rise again as early as the end of the month.
RBA Governor Michele Bullock has told Parliament that inflation remains too high and will stay that way for some time, refusing to rule out another rate hike at the bank’s next meeting on September 29.
Bullock said something must be done about rising inflation or the cost of living will continue to get worse for Australians.
She said the question for the board is whether the three rate hikes already delivered this year will be enough to bring inflation down from its current level of 3.5 per cent to under 3 per cent.
Bullock says the full effect of those earlier decisions is yet to be felt.
“But reducing inflation is essential. High inflation hurts all Australians,” she said.
Both Bullock and Treasurer Jim Chalmers said inflation is being fuelled by the war in the Middle East, with petrol prices potentially hitting $2.60 a litre soon.
Chalmers was blunt in his assessment: “From an economic point of view, the war in Iran has been a disaster.”
Bullock echoed that sentiment, but said the government should be taking counter measures to combat inflation.
“This Middle East shock has made us poorer. We can’t respond to that by letting inflation get out of control,” Bullock said.
“In fact, it’s more important than ever that we bring inflation back to target.”
Other factors driving inflation include the artificial intelligence (AI) and data centre construction boom.
The treasurer is predicting a tech revolution that will be profound across the next four decades.
“It will be the defining influence on our economy and our prosperity,” Chalmers said.
RBA Deputy Governor Andrew Hauser concurred, saying, “What is also very striking is how strong the AI and tech boom is and has been.”
The International Monetary Fund (IMF) has welcomed Chalmers’ property tax changes for correcting distortions in the housing market, but said the Albanese government and state premiers need to get spending under control.
“We do understand that people are under pressure. That’s why we’re rolling out cost of living help,” Chalmers said.
Shadow Home Affairs Minister Jonathon Duniam responded at the government’s approach.
“Part of what government can do is reduce pressures on inflation by reducing government expenditure. We’ve heard nothing out of them on that,” he said.
The official cash rate currently sits at 4.35 per cent, but some economists are warning there could be three more rate hikes, which would push it above 5 per cent.
BetSshares Chief Economist David Bassanese said another hike appears likely.
“On balance, it is now likely the RBA is going to go in September. I mean, we did have a hot inflation read a few weeks ago. Central banks around the world are raising rates,” he said.
“The signals are clear. They’re rising soon and maybe multiple times.”
If those predictions come true, mortgage holders would be paying more than 7 per cent interest with their banks.