This means the current tightening cycle has now seen a 325 basis point increase since April last year, when the cash rate was just 0.10%.

The decision was in line with expectations from all of the big four Australian bank economists, with CPI figures for the December quarter of 2022 showing headline inflation at 7.8% for the year, a 1.9% quarterly increase.

The RBA continue to see no alternative other than to repeatedly increase interest rates, contracting demand in the economy in an attempt to ease inflationary pressures.

In his statement issued with the announcement, RBA Governer Dr Philip Lowe reaffirmed that combatting inflation remains the priority for monetary policy moving forward.

"High inflation makes life difficult for people and damages the functioning of the economy," Dr Lowe said.

"If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.

"The Board is seeking to return inflation to the 2–3% range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one."

AMP Chief Economist Shane Oliver says record household debt levels mean mortgage payments are likely to reach record highs relative to household income.

"This is likely to result in a rise in mortgage stress, particularly as fixed rate loans reset this year," Mr Oliver said.

The average variable interest rate for new owner occupied home loans has already doubled since April.

The announcement also means Australia continues to be on track for a fall in national house prices of up to 10% by the end of the year, a forecast made by PropTrack based on the cash rate increasing by 50 basis points from December 2022 (3.10%).

Average national home prices are already down by 8.9% from their high in April last year, the biggest and quickest fall over nine month period recorded by CoreLogic, with data dating back to 1980.

Shane Oliver and AMP expect the eventual top to bottom fall out in home prices to reach 15-20% by the end of the September quarter.

"Rising mortgage rates remain the main driver of the slump and there is likely more to go," Mr Oliver said.

What will the cash rate peak at?

The RBA will convene once again in March for the next cash rate target announcement. In his closing remarks for this months statement, Dr Lowe indicated further increases are likely.

"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," Dr Lowe said.

Comparing this to the corresponding remarks in previous statement suggest a more hawkish outlook for the RBA.

In the December announcement, Dr Lowe diluted suggestions rates would continue to rise with assertions that the board 'was not on a preset course.' 

These qualifying comments were removed this time around, which could be an indicator that the March monetary policy decision is likely to be a question of how much, rather than if, the cash rate will be further raised.

Head of Australian Economics at CBA, Gareth Aird, believes the hikes we have seen so far should begin to have their intended effect, and that further rate increases could push the economy into dangerous waters.

"An important consideration for the RBA is that fixed-rate mortgages have so far insulated many Australians from interest rate increases," Mr Aird said in advance of Tuesday's RBA announcement.

"There is a lag effect on previous rate hikes and large volumes of fixed rate mortgages expiring this year and higher monthly borrowing payments should cool demand."

After todays announcement, Mr Aird revised his predictions for the cash rates eventual peak.

Previously, CBA had anticipated a final hike today prompting a pause in the increases, but after Dr Lowe's comments, they now expect further 25 basis point increases at both the March and April board meetings.

Mr Aird said that such a cause of action would "take monetary policy into deeply restrictive territory".

Economists from the big four banks all anticipated a 25 basis point increase this time around.

All now expect that the rises will continue, but expectations for the eventual peak are varied

  • CommBank: There will be further 25 basis point increases in both March and April for an eventual peak of 3.85%.
  • ANZ: There will be at least further two 25 point hikes by May 2023, with a risk that rates could be pushed even further to 4.1% if inflation keeps rising.
  • NAB: The cash rate will peak at 3.6% in March.
  • Westpac: The cash rate will reach 3.85% by May 2023, but then a pause is "confidently expected".


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Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

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