Reserve Bank of Australia (RBA) has lifted the cash rate by 25 basis points (bps) to bring the official cash rate to 4.1 percent from 3.85 percent in its 12th cash rate hike since the central bank began raising rates in May 2022.

This marks the first time the official cash rate has sat above 4 percent since April 2012, when it was at 4.25 percent.

RBA governor Philip Lowe said on the decision: “The Board is still seeking to keep the economy on an even keel as inflation returns to the 2–3 percent target range, but the path to achieving a soft landing remains a narrow one. A significant source of uncertainty continues to be the outlook for household consumption.”

“The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. Housing prices are rising again and some households have substantial savings buffers, although others are experiencing a painful squeeze on their finances.”

Mr. Lowe continued: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, 

but that will depend upon how the economy and inflation evolve.

“The Board will continue to pay 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.”

Speaking after the rate decision, the director of brokerage Zippy Financial, Louisa Sanghera, said people are “really feeling the rate rises now”.

“They weren’t happy as the rates started rising but were coping.

“However, the last two rises have really started to put clients under financial pressure. The rate hike is going to tip some people in hardship for sure.

“People are using their savings to live and that will only last them so long. Our investors are being hit big time, with multiple properties, they’ve got increases across multiple mortgages and I think you’ll see more investors put their properties on the market in the coming months if the rate hikes don’t stop,” Ms Sanghera said.

Similarly, the CEO of aggregation group Finsure, Simon Bednar, said the lift in inflation in April has put the RBA back on alert after inflation seemed to be under control and the cash rate neared its peak.

Furthermore, Mr. Bednar stated the FWC’s decision to lift award rates is also expected to add to inflationary pressures in the future.

“We may need to brace for at least a couple more increases to the cash rate.

“Official rates look likely to hit 4.35 percent during the second half of the year though the RBA may then keep rates on hold until Christmas.

 “If inflation can be contained over the next 12 months, we could see the RBA lower the cash rate again during 2024,” Mr Bednar said.

Mortgage Choice CEO Anthony Waldron said: “The Reserve Bank’s decision to raise the cash rate shows that it believes more needs to be done to stop inflation.”

“Most borrowers have been happy to keep their rates variable throughout the year, and this continued in May,” the brokerage head said.

“Mortgage Choice home loan application data shows that over the month, 93 percent of borrowers chose variable rate home loan products, compared to just 7 percent who fixed their rate,” Mr. Waldron added.

Mark Haron, the executive director of aggregator Connective noted that another rate increase from the RBA would “impact the economy and the property and lending sectors uniquely, more borrowers will need to make informed, complex decisions to protect their financial security – and brokers have a crucial role to play”.

“Sustained rate increases have made it harder than ever for brokers to find ‘cheaper’ rates for clients as fixed rate terms expire for thousands.

“Adding complexity to this challenge is the increased risk of becoming a ‘mortgage prisoner’ where borrowers are prevented from moving to a new lender when their fixed rate expires due to not meeting serviceability tests that have changed since they first borrowed,” Mr. Haron added.