RBA Raises Cash Rate Target to 2.6% in Effort to Curb Inflation: What This Means for Australians

The RBA’s decision to hike the cash rate target by 25 basis points has sent shockwaves through the Australian economy. With inflation on the rise, the central bank is taking decisive action to bring it back under control. But what does this mean for everyday Australians?

For starters, anyone with a mortgage will feel the pinch. The latest rate hike means an extra $76.45 a month for those with a $500,000 mortgage, and over $150 a month for those with a $1 million mortgage. Since May, mortgage repayments have already jumped by more than $500 for the average borrower.

This aggressive monetary tightening has put a strain on many Australian households. According to Roy Morgan research, nearly a million mortgage holders are now classified as ‘At Risk’, with that number set to rise even further if rates are hiked again in November.

The last time rates rose this quickly was in 1994, following the recession of the early ’90s. Back then, the RBA raised the cash rate over many months until it reached 7.5%. It wasn’t until 1996 that rates began to decline again.

Now, history seems to be repeating itself. RBA governor Philip Lowe has made it clear that further rate hikes are necessary to bring inflation back down to the target range of 2-3%. While the bank is not on a pre-set path, it is committed to doing whatever it takes to achieve this goal.

But the prospect of more rate hikes has many Australians and economists worried. Some fear that consecutive increases could push the economy into a recession we don’t need to have. Lowe, however, remains steadfast in his commitment to lowering inflation.

As the RBA closely monitors the global economy, household spending, and wage and price-setting behavior, it anticipates further increases in inflation before it eventually declines back to the central goal. The road ahead may be uncertain, but one thing is clear: the RBA is determined to steer the economy back on track.