Steep rate hikes have coincided with an a forecasted dampening in consumer and household spending which is sparking fears of an economic slump.
Subscribe now for unlimited access.
or signup to continue reading
On Tuesday, the Reserve Bank invoked its fifth consecutive rate hike by 50 basis points to 2.35 per cent, with the fastest series of hikes since 1994, now adding hundreds of extra dollars to loan repayments for borrowers.
The decision has fuelled more calls by the Greens to axe Philip Lowe's tenure as governor. However, Treasurer Jim Chalmers has promised to protect the bank's independence instead looking to ease cost pressures on households in the short term.
Constrained spending due to higher interest rates and inflation has prompted Westpac to down grade its outlook by almost a percentage point for second quarter gross domestic product which is set to be released on Wednesday.
Greens senator Nick McKim, who has three mortgages and four properties, including one taken out in December last year, called for Dr Lowe's resignation saying he "induced" Australians into taking on massive levels of debt.
"Independence does not mean zero accountability and it's time that people in Dr Lowe's position were held to account for what they say, and what they do, and the time for that is now," he said.
"People in Dr Lowe's position, the high priests of neoliberal economics in this country, they need to be held to account."
During House question time, Dr Chalmers flagged it would be "difficult news" for many mortgage holders.
"Once again, it isn't a surprise to anyone. The bank had flagged more increases. The markets had anticipated it and homeowners were expecting it as well, but the fact that we knew it was coming doesn't make it any easier for people," he said.
"It is our job to do what we responsibly can to help Australians deal with these pressures in the near term, and to build a much more resilient economy into the future."
Westpac's forecast for GDP has been downgraded to 1.1 per cent for the quarter and 3.6 per cent for the year. It was downgraded from 2 per cent and 4.5 per cent respectively.
The bank flagged there are uncertainties around consumer spending, an area of concern which has also been raised by the RBA.
A separate retail spending report from Deloitte Access Economics found consumption over the year was up, but price pinches would be felt across the sector over the coming 12 months.
Dr Lowe in his statement outlined more rate hikes would be coming in months ahead as the bank attempts to bring inflation back into its target range of 2 to 3 per cent. Inflation in the December quarter is poised to peak at 7.75 per cent.
READ MORE:
"The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy," he said.
"Price stability is a prerequisite for a strong economy and a sustained period of full employment.
"The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market."
Rate rises have also coincided with further cost pressures about to be placed on households at the end of the month, with the treasurer confirming the six-month fuel excise cut would come to an end, adding about 22c/L to costs at the bowser.
Latest interest rates rises are coming ahead of further cost pressures about to be placed on households at the end of the month. Treasurer Jim Chalmers confirmed the six-month fuel excise cut would come to an end and add about 22c/L to costs at the bowser.
The opposition's Treasury spokesman Angus Taylor slammed the Albanese government for having no plan for families taking on the brunt of fast-rising bills.
Dr Chalmers noted further hikes would impact the government's ability to service its own existing debt levels.
"It also means more difficult decisions for governments, because higher interest rates mean a higher cost of servicing the trillion dollars of debt that has been left to us," he said.
The Treasurer outlined it wasn't the role of government to interfere in the RBA's role of price stability through interest rate adjustments.
But Mr Taylor said the rate hike added further pressure to already tight household budgets and Labor offered no solution.
"By Christmas - a time when Australians are wanting to spend money on gifts for loved ones, getting together with family and going on holidays - the pain of the rate rise will really start to sink in," he said.
"The government doesn't want to talk about the cost-of-living crisis because it doesn't have a plan.
"The only thing the Albanese government could manage in response was to host a jobs summit vanity project, which failed to deliver a single thing to address cost of living pressures on families and businesses."
On mortgages, calculations from RateCity show a $750,000 mortgage would cause monthly repayments to rise by $216 after the September hike.
The average owner-occupier variable rate now sits at 5.11 per cent, while investor loans are at 5.46 per cent.
RateCity research director Sally Tindall said a number of lenders are still offering rates below 5 per cent.
"Already 25 lenders on our database have cut variable rates for new customers since the RBA hikes began in May," she said.
"In fact, five banks, including CBA and ANZ, have lowered their rates twice in this time."
Dr Lowe in his statement also highlighted household spending remained an area of uncertainty, as consumers respond to higher costs brought on by both interest rates and higher inflation.
"Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments," he said.
"Consumer confidence has also fallen and housing prices are declining in most markets after the earlier large increases."
Economic forecasts from the RBA also point to inflation peaking at 7.75 per cent later this year and then sitting at 4 per cent through 2023.
Prime Minister Anthony Albanese on Tuesday said legislation would be introduced to provide cheaper medicine and childcare in the coming fortnight.
"That's why we put forward a submission to the Fair Work Commission to increase the wages of people who are on the minimum wage and successfully argued for the result, which was a 5.2 per cent increase," he said.
ANZ anticipates the cash rate will likely neutralise at 3.8 per cent next year.
Sarah Basford Canales
