Borrowers warned: ‘Start preparing for another one, if not two rate hikes’

That data showed annual inflation has now increased for the third month in a row, sitting up at 4 per cent in May. That’s the highest level of inflation seen since November 2023.

This comes just one week after the Reserve Bank of Australia (RBA) decided to keep the cash rate at 4.35 per cent. At that same time, the RBA governor, Michele Bullock, said the risk of a rate hike had not increased.

But, having noted “we need a lot to go our way if we are going to bring inflation back down to the 2 to 3 per cent target range”, Bullock may now need to go back to the drawing board, with RateCity alerting consumers to “start preparing their budgets for the possibility of not just one, but potentially two more rate hikes before the year’s end”.

Sally Tindall, research director at RateCity, believes next month’s quarterly CPI figures will be “the moment of truth for the RBA”.

She warned: “If it’s way off track, the board will have no choice but to act, potentially as soon as August.”

Acknowledging the wait-and-see approach has suited the RBA up until now, Tindall said: “The reality is, after five consecutive meetings on hold, the board is running out of runway to keep going in this holding pattern.

“The board is likely to have wanted to take the time to see how the extra cash from the stage three tax cuts and the electricity rebate had on household consumption, but with the clock ticking in the background it could well speed up any decision to hike.”

And while stage three tax cuts “might add to the case for a cash rate hike”, Tindall also expects they’ll “serve as a lifeline for many borrowers if another one eventuates”.

For anyone with a mortgage, she advised: “Start preparing for another one, if not two rate hikes today, if you haven’t done so already.”

Borrowers can not only negotiate with their bank for a better rate, but should also review their home loan features.

She also recommended refinancing, where possible, highlighting “there are still around 30 lenders offering variable rates under 6 per cent to owner-occupiers looking to refinance”.

“A mortgage rate that starts with a 5 will put you in good stead to tackle whatever the next six to 12 months holds,” she concluded.