RBA chief's apology brings little cheer as Aussies get a rate hike for Christmas

The Reserve Bank of Australia (RBA) increased the official cash rate by 25 basis points to 3.10% at its December board meeting, capping off a year of mortgage pain for many. 

Aussie home loan borrowers have been given an interest rate hike for Christmas, with the RBA board raising the cash rate in the lead-up to the festive season, and banks and lenders sure to swiftly follow by raising their own home loan variable rates.

The move comes just a week after RBA chair Dr Philip Lowe made an unprecedented apology to Australians, admitting that the bank’s guidance around rate rises may have led many to take out mortgages they are now struggling to pay off.

Lowe “sorry” to those who followed guidance

When the RBA set the cash rate at a record low point in 2020, to try and target the ongoing economic effects of the COVID-19 pandemic, Dr Lowe said it would “very likely” not rise again until 2024, words he repeated often in the year that followed.

On the presumption that rates would stay low, many Aussie borrowers took out expensive mortgages. These mortgages became even more expensive when rates began rising again in May of 2022, two years earlier than Dr Lowe had predicted.

“I’m sorry that people listened to what we’ve said and acted on that, and now find themselves in a position they don’t want to don’t want to be in,” said Dr Lowe, addressing the many Aussie borrowers who now face mortgage stress as rates continue to rise.

He went on to say his pronouncement that rates would not rise again until 2024 came with caveats, but that these could have been more strongly communicated.

How could the cash rate hike affect your mortgage?

Following eight months of consecutive cash rate hikes, mortgage repayments for the average Aussie borrower will likely look very different at Christmas than they did at the start of the year.

When the RBA announces a cash rate hike, banks and lenders are generally quick to raise their own home loan variable rates, so Canstar research crunched the numbers to find out how much more the average borrower might expect to repay.

We also looked at how much more expensive the average variable rate mortgage might be now compared to what it was in April this year, the last month before the current round of cash rate hikes.

Source: www.canstar.com.au – 1/12/2022. Monthly repayment calculations based on a loan repaid using principal & interest repayments over a total loan term of 30 years at a loan-to-value ratio (LVR) of 80%. Repayment calculations interest rate based on a starting rate of 5.73% (average owner occupier variable rate pre-May cash rate of 2.98% with May, June, July, August, September, October, and November cash rate increases applied). Repayments rounded to the nearest whole dollar.

December 2022: RBA cash rate vs variable rate

Lowe promises new approach as RBA faces review

After last week’s public apology, Dr Lowe said the RBA plans to change its approach in how information is communicated to the public.

This mea culpa comes at a time when the central bank is facing a wide-ranging review into its inner workings and performance, the first of its kind since the current monetary policy arrangements were made in the 1990s.

The review, headed up by a panel of independent experts, will consider four key themes, and will look into a range of areas from the bank’s governance and culture through to how well it has performed against its objectives.

The review will also consider whether the RBA’s current aim of keeping inflation to between 2% and 3% - one of the key reasons behind the recent run of cash rate hikes - is still appropriate in the current climate.

A report based on the review, including recommendations, will be handed in to the federal government by March 2023.

Cover image source: Dragen Zigic/Shutterstock.com