Australians warned to brace for even more cash rate pain after RBA hike
Australian borrowers have been warned to expect even more mortgage pain in the coming months after yesterday's interest rate hike.
The Reserve Bank's monetary policy board unanimously decided to raise the cash rate by 25 basis points, up to 3.85 per cent, at its first meeting of the year, in a move widely expected by economists.
In her press conference following the decision, RBA Governor Michele Bullock would not be drawn on whether future hikes were likely.
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Some economists have warned Australians to expect another interest rate hike this year. Getty
"It is not the same as the tightening cycle when we were coming out of COVID, when we were coming from a 0.1 per cent cash rate; it was quite clear that we had to go up and we had to go up quickly," she told reporters.
"This isn't as clear."
Others aren't as circumspect.
Commonwealth Bank has now changed its interest rate outlook for the year, joining NAB in pencilling in a hike to 4.10 per cent in May.
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The RBA's updated forecasts now have inflation remaining above the 2-3 per cent target until mid-next year, while core inflation isn't predicted to reach the middle of that band until 2028.
CBA head of Australian economics Belinda Allen said that "will not be tolerated by the RBA".
"The risk always sat with a second rate hike to bring inflation back towards target and the economy back into balance," she wrote.
"With the labour market now in a better position than a few months ago, and an increased resolve from the RBA, on the balance of probabilities we now see the RBA hiking again in May to take the cash rate to 4.10 per cent.
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Reserve Bank Governor Michele Bullock, as always, refused to provide forward guidance about where rates are heading.. Louie Douvis
"But it remains a line-ball decision and is dependent on the data flow from here."
The remaining two big four banks – Westpac and ANZ – are tipping interest rates will remain on hold for the rest of the year, although both have admitted there is a risk of another hike.
"The low bar for further hikes means that, (without) a downside surprise in the March quarter inflation outcome, the monetary policy board is likely to hike again in May," Westpac chief economist Luci Ellis said.
In a further blow to the likelihood of inflation cooling off quicker – and potentially avoiding the RBA pushing up rates again – new research from non-profit the e61 Institute showed yesterday's rate increase may not do much to slow down rising prices.
"Raising rates may not have a large impact on consumer spending in the near term," research director Dr Gianni La Cava said.
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While it's not known whether the RBA will hand down another hike, any chance of lower rates is well and truly gone. Tony Yoo
"We found that when the RBA hiked rates by 4.25 percentage points over 2022 and 2023, people with variable mortgages barely changed their spending habits despite payments rising by $14,000 a year on average.
"This was because they could mostly finance the extra payments from large savings held in offset and redraw accounts.
"Those savings absorbed the shock, letting many households preserve their lifestyles despite higher interest costs.
"In late 2025, households still had significant buffers in their offset and redraw accounts, with 40 per cent of mortgage holders holding enough savings to make minimum payments for two years.
"This indicates that the latest interest rate rise will likely have a limited impact on spending through the cash flow channel."
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