The Reserve Bank has lifted interest rates by another quarter of a percentage point, with ANZ becoming the first bank to pass on the increase to its customers.
Look back on Tuesday's updates and reactions as they happened in our blog.
Key events
Live updates
We'll wrap up our live coverage here
By Jessica Riga
Thank you for joining us today! Here's a quick recap if you're looking to get up to speed:
- The Reserve Bank has raised interest rates for the ninth meeting in a row, taking the cash rate target to its highest level since September 2012
- The 0.25 of a percentage point increase at today's RBA board meeting leaves the benchmark rate at 3.35 per cent, with average variable mortgage rates now topping 6 per cent
- The increase adds a further $114 a month to repayments on a $750,000 home loan, taking the total increase in mortgage costs to $1,362 a month for such a borrower since rates started rising in May last year
- Right now, ANZ is the only big bank to pass on the RBA's rate hike
You can catch up on Tuesday's developments below, or download the ABC News app and subscribe to our range of news alerts for the latest news. Bye for now!
RBA hikes interest rates by a quarter of a percentage point
By Jessica Riga
The Reserve Bank of Australia has lifted the cash rate for a ninth consecutive time, with the central bank foreshadowing further hikes in the future.
Business reporter Sue Lannin spoke to Sally Auld, the chief investment officer at JBWere, a little earlier.
How does raising interest rates reduce inflation?
By Gareth Hutchens
How does raising interest rates reduce inflation? Doesn't everyone get impacted by increases to repayments indirectly such as through increases in rent, and then everything just keeps getting more expensive to keep up?
- Scott
Another good question.
By lifting interest rates, the RBA is forcing households with mortgages to pay more interest to their banks. That reduces those households' disposable income so they have less money to spend, which reduces economic activity over time.
That's the theory.
But you're absolutely right. People are getting indirectly impacted by the rate increases. Renters, for one. Landlords everywhere have been lifting rents.
Since interest rates are seen as a cost of doing business, many businesses are trying to push those higher costs onto their customers (if they can get away with it).
So prices are rising, and interest rates are contributing to some of the higher prices, but the hope is that the higher rates will dampen economic activity enough so that prices will start coming down again.
But yes, there does comes a point where the cost of everything can keep going up until the system can't take it anymore.
In the past, central banks have lifted interest rates extremely high to strangle economic activity and deliberately manufacture a recession so they can "reset" the economy with lower prices. That's what happened in the US in the 1970s and Australia in the early 1990s.
But the RBA hasn't suggested this inflationary episode is anything like that.
ANZ first of the big banks to pass on interest rate rise
By Jessica Riga
ANZ has announced it will increase interest rates for its variable home loan and some saving customers following the RBA's decision to increase the cash rate.
Variable interest rates across ANZ's home loans will increase by 0.25 per cent from February 17.
RBA more hawkish
By Gareth Hutchens
A few economists have pointed out how hawkish the RBA's statement is today.
They say the final paragraph of the RBA's statement is crucial:
The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.
It's like the RBA's board members have come back from their summer break with some urgency to keep lifting rates.
ASX dips more than 0.5 per cent as RBA signals more rate rises to come
By Andrew Thorpe
Australian shares fell by more than half a percentage point following the RBA's decision, after earlier setting a new 100-day high.
The ASX200 had gained 0.1 per cent over the course of the day prior to the announcement.
The big banks in particular felt the pinch, with the Commonwealth Bank and NAB dropping more than 0.6 per cent, and Westpac just above them at 0.59 per cent.
ANZ was trading down 0.04 per cent as of 4pm AEDT.
Why couldn't we raise the GST instead?
By Gareth Hutchens
Question for Gareth please If , as all economists state, the reason for rate rises is to curb inflation by inhibiting consumer spending , why doesn’t the government give he RBA the power to adjust the GST rate. This would surely impact consumer spending across the board to share the pain , could be targeted by exempting non discretionary expenditure and would have much quicker impact than rate rises surely
- Phillip
I love this question.
It gets to the heart of what we're all experiencing.
In an extreme inflationary episode like this one, we really get to experience how inflation has distributional consequences.
That is, inflation redistributes everyone's purchasing power. It can diminish it for some households (like wage earners and pensioners) while increasing it for other groups (like asset owners and corporations).
But we also see how the policy tools we use to tackle inflation also have distributional consequences.
For example, under the current system, the main tool policymakers use to tackle inflation is interest rates.
By lifting interest rates, the RBA forces households with a mortgage to pay more interest to their banks, thereby taking away some purchasing power from those households so they have less money to spend at the shops.
But Phillip wants to know if there's another way.
He wants to know: what if the RBA manipulated the rate of the GST instead? What impact would that have?
Well, it would lift the prices of consumer goods (that have a GST applied to them) by a uniform rate.
Would that help to bring prices down? You'd be lifting prices everywhere, on top of the price increases that have already occurred, to hopefully stop people buying as much.
The distributional consequences of that policy would be different to the current system.
For one, you'd be asking people who aren't well-off enough to have a mortgage (like renters and some pensioners and young adults) to pay even more at the shops than they are currently, and those price rises would come very quickly.
Anyway, it's a great thought experiment.
If you wanted to go down that path, you'd have to think about all of the possible consequences that would come from it. The current system is all built around the manipulation of interest rates.
'This is a scary time', Shadow Treasurer says
By Jessica Riga
"It got a whole lot harder now," Shadow Treasurer Angus Taylor says.
"This is a scary time for so many Australians. And what makes it even scarier is we heard today from the Governor there are multiple increases yet to come.
"Given all of that, what we want to see is a government that treats this issue, rising cost of living, rising inflation, rising interest rates as its absolute top priority."
"We have an independent Reserve Bank. But it makes its decision within the context of government policy. The government needs to act to do whatever it can to take pressure off interest rates."
Shadow Treasurer describes rate rise as 'a tough day' for families and small businesses
By Jessica Riga
Angus Taylor is speaking now. You can tune in using the live stream embedded at the top of the blog.
"For a typical family that's got a $750,000 mortgage, this will mean additional payments of $18,000 a year," he says.
"That means big sacrifices. It means for double income families having to work extra hours. Extra hours that mean one of the parents is not able to pick up the kids after school. It means giving up on that family holiday or the new car they've been aspiring to for many years.
"Not only is this a tough day for Australian families with a mortgage, it's a tough day for small businesses that have borrowed to grow their business and a tough day for aspirational renters wanting to buy a home, dreaming of buying a home."
Borrowers face 'great anxiety'
By Jessica Riga
In the Western Sydney suburb of Pendle Hill, mortgage broker Sashi Sen is seeing a rush of clients — not seeking new loans, but to refinance their existing ones for a better deal.
"If they even get 0.1 [percentage points] cheaper, they are moving. They're not staying with the current banks," she observed.
Myriam Borg is one of her customers, and said she has become much less "relaxed" about her household spending.
"Suddenly you're watching for where you can actually be adding more into your home loan," she told The Business.
"I'm watching it with great anxiety, to be honest. And I think with myself, and I'm assuming a lot of home owners, they would be feeling really anxious because it's the unknown, and you don't know whether it's going to keep on escalating."
You can continue reading this story by business reporters Michael Janda and Stephanie Chalmers.
What economists are saying
By Jessica Riga
Sean Langcake, head of macroeconomic forecasting for BIS Oxford Economics writes:
"Inflation appears to have peaked, but the RBA's main concern will be for how long inflation remains above the target range, and whether this overshoot feeds into inflation expectations.
"Today's statement is not an especially dovish one and we expect another rate hike in March is all but certain."
The Housing Industry Association's chief economist, Tim Reardon, says:
"A return to stable economic growth will not be achieved by putting the housing sector through boom-and-bust cycles.
"Lending for new homes is down by 62.4 per cent since its peak in January 2021, to its lowest level since November 2012. Sales of new homes have stalled in recent months as market confidence declines.
"This poor data is as a consequence of the fastest increase in the cash rate in a generation. Despite this, the impact of last year's rate increases won't be fully apparent until late this year.
"The decision by the RBA to increase rates further in 2023, will further erode market confidence and accelerate the downturn that is already evident."
Dollar surges on back of rates news
By Andrew Thorpe
The Australian dollar has risen more than half a percentage point against the US dollar on the back of the RBA's announcement, and is currently sitting at 69.39 US cents.
The surge follows a collapse in value on Friday after the release of US labour statistics which showed the US added 517,000 jobs in January.
The Aussie dollar has also risen against the yen (91.72), the pound (0.58 pence) and the euro (0.65 euro cents).
Can you call your bank to ask for a discount?
By Gareth Hutchens
Here's a question from a reader:
Is it possible to call the bank and ask for a discount, or to not pass on the interest rate rise? - Jackerouac64
It looks like there are two questions in there.
1. Is it possible to call the bank to ask for a discount?
Absolutely. If you have the time and energy, this is exactly the moment to shop around and get banks to compete for your custom. It can really be worthwhile finding a bank that will offer the lowest rates going (with the best terms for you). It could save you thousands of dollars.
This is also the time when mortgage brokers and financial advisers will get especially busy, because they'll (hopefully) be trying to find the best deals for their customers (i.e. you) by hitting the phones.
2. Do the banks have to pass on the interest rate rises at all?
The big banks often say they have to lift rates when the RBA does because their cost of funding has gone up.
It's rare that a bank will keep its mortgage rates where they are.
But this is a time when the banks can really compete on mortgage rates, because interest rates are suddenly more salient, and oftentimes you'll see the banks lifting rates by the same amount on some kinds of mortgages while offering slight discounts on other kinds of mortgages.
Treasurer Jim Chalmers addresses RBA's interest rate rise
By Jessica Riga
Treasurer Jim Chalmers says there is growing evidence that inflation is expected to have peaked as the RBA lifts its cash rate by 0.25 per cent.
Why the RBA is raising rates in one graph
By Andrew Thorpe
There's one reason the RBA sent interest rates to their highest level since September 2012: inflation.
Annual inflation currently sits at 7.8 per cent, the highest level since 1990, when it reached 8.7 per cent before the recession.
Philip Lowe used his statement to highlight that the RBA board's priority is to return inflation to its target band (that is, 2 to 3 per cent).
"High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later," he writes.
This graph shows Australia's annual inflation rate soaring in the years since the pandemic.
This family was delighted to buy a home and renovate it, but now their mortgage payments have doubled
By Jessica Riga
When Emily and Jimmy Black bought their first home in September 2020, their mortgage repayments were tough but manageable.
Fast forward little more than two years and their payments have doubled to about $2,000 a month.
It has resulted in significant life changes for the Blacks.
"I cut my maternity leave short by two months and went back to work part-time in January," Ms Black, 34, said.
You can continue reading their story using the link below.
Generations see RBA competency differently
By Andrew Thorpe
Some interesting research out of Compare the Market this week shows your age might play a role in whether you believe the Reserve Bank will be successful at tackling inflation.
About one in three Australians say they are confident in the RBA's abilities, according to Compare the Market's survey — though that number rises to 40 per cent for Gen Z (those born between 1996 and 2010).
On the other side of the coin, Gen X are the most likely to say they definitely aren't confident in the RBA, at 44 per cent, followed by baby boomers at 43 per cent and the post-war generation at 42 per cent.
Compare the Market general money manager Stephen Zeller says Australians' confidence in the RBA as an inflation-fighting institution began to tank last year.
"The RBA started lifting rates, [and] inflation continued to soar," he says.
"After eight consecutive rate increases since May last year, we're still in a similarly precarious position."
Got a question? Let us know
By Jessica Riga
Our business reporter Gareth Hutchens is on hand to answer any questions you have about the rate rise, so submit your queries using the blue 'leave a comment' button.
Use our repayment calculator to see how much this recent rise will impact you
By Jessica Riga
The Reserve Bank of Australia has increased the cash rate by 0.25 of a percentage point.
This leaves the benchmark rate at 3.35 per cent, with average variable mortgage rates now topping 6 per cent.
If you have a mortgage on a variable rate, your repayments will probably increase too.
This repayments calculator shows how much extra you may have to pay each month.
25-point hike a signal that RBA is staying the course on inflation fight, expert says
By Andrew Thorpe
JBWere chief investment officer Sally Auld says the RBA's decision to raise interest rates by 25 basis points was broadly expected by the market.
"I think relative to what's been going on in other central banks over the past couple of weeks, I think the market will look at this and say, 'These guys are still pretty serious about bringing inflation down'," she says.
"They have told us they're very data-dependent. It's going to be household spending, the global economy, and basically wage and price behaviour that determines what happens to rates from here. And so I don't get the sense that this is a Central Bank who is on the cusp of pausing."
