Interest rates: RBA chief economist Sarah Hunter gives strong hint about another hike as big banks tip raise

The Reserve Bank’s chief economist Sarah Hunter has given a strong hint borrowers will be copping another interest rate rise next week.

Australia’s big four banks are all expecting the RBA to hike rates next Tuesday, which would take the cash rate to a 15-year high of 4.6 per cent.

ANZ is the only big four bank expecting two hikes by November 3, that would take the cash rate to an 18-year high of 4.85 per cent but the Commonwealth Bank, Australia’s biggest home lender, on Tuesday hiked its fixed-mortgage rates by the equivalent of two RBA rate increases.

Ahead of RBA governor Michele Bullock delivering a keynote speech on Tuesday afternoon, Dr Hunter said the Reserve Bank’s nine-member monetary policy board was focused on bringing down inflation, which in July was above its 2-3 per cent target for the 12th straight month.

“Obviously, we want to get inflation back down. Inflation’s just hard to live with, particularly if you’re on a low income,” she told The Pay Off podcast with Sylvia Jeffreys uploaded on Tuesday morning.

“That’s what the cost-of-living squeeze is. We want and need to get it out of the economy and that’s what the board are focused on.

“They are still very concerned about inflation and we think the risks to inflation are skewed to the upside.

“If those risks do manifest, then I think the board have been clear they have to, they will definitely be considering whether or not they will have to hike the cash rate.”

Dr Hunter, an assistant governor who advises the monetary policy board during its two-day meetings, said higher interest rates were a more effective way of tackling high inflation.

“That’s actually why we use interest rates because they get into everywhere, into all the nooks and crannies and eventually they’ll have an impact on all parts of the economy,” she said.

Crude oil prices are now below $US100 a barrel again, after last week hitting a four-month high.

But motorists are typically paying more than $2.40 a litre for basic unleaded petrol and more than $2.90 a litre for diesel, following drone strikes by Iran-backed terrorist groups on Saudi Arabia’s East-West pipeline connecting the Persian Gulf with the Red Sea.

“Why is inflation above target, high at the moment? We’re all feeling that in the cost-of-living squeeze,” Dr Hunter said.

“Few factors there: there’s the conflict in the Middle East and what it’s done to oil prices.

“That’s going to have an impact indirectly as well because we have to truck goods around the economy - food has to go from farmers to the shops and that requires diesel-powered trucks to do it.”

The Commonwealth Bank on Tuesday hiked its two-year fixed mortgage rate, for investors and owner-occupiers, by 48 basis points to 6.82 per cent.

That is almost the equivalent of two RBA rate hikes, adding up to 50 basis points, which would take typical variable mortgage rates above 7 per cent for the first time since late 2008 during the global financial crisis.

Two more RBA hikes on top of the February, March and May increases would mean five in total this year, adding $597 to monthly mortgage repayments on an average, new loan of $731,000.

Australian Bureau of Statistics data for August is being released on September 30, after the RBA’s next meeting and decision.