Illawarra homeowners with an average NSW mortgage can expect an additional $219 on their home loan repayments after the Reserve Bank announced an interest rate rise of 0.5 per cent.
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The half a percentage point rise is the highest rise in the cash rate since 2000 as the Reserve Bank hopes to rein in inflation.
In the Illawarra, Haywards Bay will be the suburb most affected by the rate rise, according to data from Microburbs, with median mortgage repayments of $2817.
In his monthly statement RBA governor Phillip Lowe said that while inflation in Australia was lower than other economies, "it is higher than earlier expected".
Mr Lowe cited international pressures such as disrupted supply chains and the war in Ukraine, as well as local factors such as capacity constraints, a tight labour market and floods as the reason for his decision.
For mortgage holders taking out an average size mortgage in NSW - $786,035 as of April, according to the Australian Bureau of Statistics - and paying the average variable mortgage interest rate of 3.23 per cent, a rate rise of 0.5 per cent would add an additional $219 to monthly repayments over 30 years.
University of Wollongong Associate Professor Martin O'Brien said that the higher than expected rate rise would compound pressures already faced by households.
"It's probably going to come as a bit of a shock to most people," he said.
Dr Lowe was positive about the Australian economy, highlighting that wages were expected to rise and that people had built up savings during the pandemic.
"The Bank's business liaison program continues to point to a lift in wages growth from the low rates of recent years as firms compete for staff in a tight labour market," he said.
Dr O'Brien said the bank was cherry picking its data.
"I have literally met one person that falls into that category, everyone else that I talked to who's working family person seems to be in a situation where, if anything, they've been going backwards," he said.
While the Fair Work Commission assesses an increase to the minimum wage, Dr O'Brien said for workers not on the minimum wage or covered by modern awards, bosses will have to make the decision to raise wages, something they have been resistant to do.
"Wage growth has been stagnant around two percent for years now," he said.
The higher than expected rate rise will prepare the Australian economy for more rate rises that are expected to come, with Dr Lowe highlighting that the record low interest rates maintained throughout the pandemic will come to an end.
"Today's increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed," he said.
"The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead."
Economists are predicting the Reserve Bank will continue to increase interest rates to 2.5 per cent. This return to normal however will be complicated by the massive increase in the value of mortgages that home owners are taking out.
"We've had a seismic shift. We've got double the size of the mortgages now for owner occupiers than 10 years ago," Dr O'Brien said.
In these economic conditions, Dr O'Brien said that shifting interest rates was the wrong tool and would only be limited in its effectiveness to address inflation caused by supply side pressures.
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