Interest rates: Reserve Bank could raise rates further adding to mortgage pressures for Australians

Australians already struggling with cost of living pressures could see three more interest rate increases this year as global inflation worries intensify. 

The Reserve Bank of Australia on Tuesday paused interest rate hikes for only the second time this year, leaving the cash rate on hold at an 11-year high of 4.1 per cent, following the July board meeting.

Since May last year interest rates have surged at the fastest pace since 1989, with 12 increases in 13 months.

Just three days later, carnage in global bond markets has stoked speculation the RBA will follow the US Federal Reserve’s efforts to tame inflation by raising interest rates further.

Fresh evidence of the strength in the US labour market emerged on Friday, causing investors to forecast further monetary policy tightening while triggering a rapid sell-off in equities and squeezing the Australian dollar.

Aussie shares on Friday plummeted 1.7 per cent to a three-month low of 7042.3 points.

Australian interest rates have not always followed the US, but AMP chief economist Shane Oliver said similarities between the two economies would force the RBA to respond to movements in other markets. 

‘Markets still only have a 50 per cent probability of a rate rise in August, but there’s now two hikes priced in by the year-end,’ he told the Australian Financial Review.

Vimal Gor, chief investment officer at Sydney asset manager Trovio, said: ‘Central banks including the RBA don’t want to hike rates, but they might be forced into it’. 

The RBA is expected to raise the official interest rate three more times before the end of the year

There is speculation the Australian dollar could fall further as investors shift capital to higher-yielding currencies like the US dollar. 

A weakened Australian dollar could see an increase in the cost of imported goods such as petrol, machinery and construction materials.

This would force the RBA to carry on its most aggressive monetary tightening cycle since the late 1980s. 

Reserve Bank of Australia Governor Philip Lowe, whose seven-year terms ends on September 17, hinted Tuesday’s pause was only likely to be temporary.

‘Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline,’ he said on Tuesday.

‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.’

Finance guru Mark Bouris has warned Australians struggling with interest rate hikes and increasing cost of living pressures could be forced to sell their homes.

Mr Bouris, who heads Yellow Brick Road Home Loans, said that although property prices will not keep rising, housing supply will, especially as people start to feel the effects of rising interest rates.

‘People are hanging out to see whether or not this rhetoric which we’re hearing at the moment, “oh, house prices are going to go up”, before they sell,’ Mr Bouris told Sky News Australia.

‘If they don’t see that period, they’re going to have to sell, and they’re going to sell to a big supply market.’