CANBERRA—Prime Minister Kevin Rudd has warned banks not to lift mortgage rates by more than tomorrow's expected official interest rate rise.
And if homebuyers needed any more bad news, new data shows inflation is worsening.
The Reserve Bank of Australia (RBA) board is expected to increase its key rate tomorrow by a quarter of a percentage point to 7.25 per cent, its highest level since the mid-1990s.
This will add another $50 to a monthly mortgage repayment on a $300,000 home loan.
But it could be more if commercial banks move their mortgage rates by a greater margin, as some did last month after the RBA's last move.
Mr Rudd said banks made independent decisions on mortgage rates.
"If they move outside of official interest rate settings ... then I am sure government will not be restrained from making appropriate comment," Mr Rudd told ABC radio.
"Banks experiencing record profitability should be very, very mindful of their corporate and community standing before leaning on people who borrow from those banks any further."
The banks also increased rates independently in January and have refused to rule out further moves as they try to recoup their additional funding costs in international markets.
Tomorrow's official rate rise is unlikely to be the last after new data showed inflation problem worsening.
National accounts figures on Wednesday are expected to show the economy was still humming along in the final three months of last year.
The TD Securities-Melbourne Institute Monthly Inflation Gauge rose by 0.3 per cent in February to 4.0 per cent over the year.
Underlying inflation also continued to increase, with the yearly trimmed mean measure of inflation rising to 4.1 per cent in February.
These readings are way beyond the RBA's two to three per cent inflation target, and compare with an official consumer price index of 3.0 per cent and underlying inflation of 3.6 per cent in the December quarter.
"The central bank has told us that inflation is going to be three per cent or higher as far as the eye can see, so it is pretty easy to work out what it means for interest rates," Commonwealth Bank of Australia chief economist Michael Blythe told a conference in Canberra.
"It means they are going up, and we are probably going to see the next instalment tomorrow after the Reserve Bank's board meeting, and quite likely there will be more after that."
At this stage the bank is forecasting the official cash rate at 7.5 per cent by the end of the year.
Research commissioned by the Government and conducted by the National Centre for Social and Economic Modelling shows 1.1 million low and middle-income households are already in housing stress - spending more than 30 per cent of their gross income on either rent or mortgages.
The number represents an increase of 220,000 households since 2004.
Australian Council of Trade Unions president Sharan Burrow urged the central bank to spare families another interest rate rise, saying it should "wait and see" how the economy reacts to the last lift in rates.
"Unleashing another rate hike on households will only further hurt working families," Ms Burrow said.
Feeds