The ASX fell again today, with the S&P/ASX200 dropping 21.70 points or 0.30% to 7,325.30.
Over the last five days, the index is virtually unchanged, but is down 1.60% for the last year to date.
The bottom-performing stocks were Ramelius Resources Ltd down 5.72% and Imugene Ltd (ASX:IMU, OTC:IUGNF) down 5.26%.
As for the sectors, Materials and Real Estate were the worst performing, losing 0.99% and 1.117% respectively.
Of course, we know the market is volatile, but all the talk this afternoon has been around interest rates.
RBA raises the cash rate
The Reserve Bank of Australia has raised the cash rate by 25 basis points or 0.25% to 0.35%, much higher than previously anticipated and a number that will contribute to the current bill shock that is crippling people in Australia and overseas.
The RBA has flagged further interest rates to come stating, “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.”
It is the first rate rise in more than a decade and the first time since 2007 that the cash rate has been lifted during an election campaign.
While Australian Prime Minister Scott Morrison is hoping the government is seen as blameless, he may well fall on the same sword as John Howard who famously campaigned on lower interest rates and was defeated at the polls after the 2007 hike.
No matter what happens politically, the reasons for the rate rise remain: soaring house prices, war in Eastern Europe, COVID disruptions, supply chain issues and an annual inflation rate of 5.1%.
No doubt borrowers will be given a small grace by the banks, but they can expect the banks to pass the increase on in full, with some banks set to move even higher.
“History reveals that home loan rate increases exceed cash rate increases,” Canstar finance expert Steve Mickenbecker said.
“Between June 2004 and June 2008, the cash went up by 2% and the average variable home loan rate by 2.25%. June 2009 to June 2011 showed a similar trend, with the average variable rate up 1.90% compared to 1.75% in the cash rate.”
“Existing customers will feel the full force of rate increases, unless they have already moved their loan to a fixed rate,” he continued.
“Variable rate borrowers had dodged the bullet until now as fixed home loan rates have rocketed up over the last six months, but will soon feel the heat of interest rate increases.”
Mickenbecker said Aussies should expect to feel more pain sooner rather than later.
"The impact of a one-off increase might sound trivial, and the increase in repayments affordable for most, but not when there is already a cost-of-living crisis hitting households," he said.
"The real impact is a little further down the track, as the Reserve Bank expects to make a succession of increases when it starts moving rates up."
"History shows that within two years of interest rates starting to rise, rates are 1.5% to 2% higher.”
RBA Governor Phillip Lowe believes a resilient economy will come through the pain.
“Now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” he explained.
“There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.
“The resilience of the Australian economy is particularly evident in the labour market, with the unemployment rate declining over recent months to 4% and labour force participation increasing to a record high.
The Labor Party which looks to be in the box seat to win the next election was immediately on the attack.
“This is a full-blown cost of living crisis on Scott Morrison’s watch,” Shadow Treasurer Jim Chalmers said.
“The lies and scare campaigns have blown up in his face.”
Opposition leader Anthony Albanese said, "It was hard enough to make ends meet under Scott Morrison and today it got even harder for millions of Australians.
"Even before today’s decision Australians were facing a full-blown costs of living crisis on his watch.
"Scott Morrison’s economic credibility was already in tatters, now it’s completely shredded.
"After almost a decade of this Liberal-National Government, the costs of essentials are out of control, real wages are falling and now interest rates are rising by a quarter of a per cent.
"Everything is going up except wages and now interest rate rises are part of the pain.
"When things are going well in the economy Scott Morrison takes all the credit, but when things get difficult he takes none of the responsibility. He can’t have it both ways."
Albanese did acknowledge the independence of the RBA.
"We’ve been responsible and reasonable about the causes of today’s decision," he said.
"But governments have a role to play in easing cost of living pressures and in creating secure jobs which put upward pressure on wages.
"All Scott Morrison and Josh Frydenberg have is a plan to get them through the election, and one-off payments timed to land during the campaign and end after.
"Labor has a plan for a better future beyond the election, which is designed to: grow the economy without adding to inflationary pressures; ease cost of living pressures; get real wages growing again; and to get economic bang for buck from a Budget heaving with a trillion dollars in Liberal-National debt.
"This Prime Minister and this Government have an excuse for everything and a plan for nothing, and it's hardworking Australians who are paying the price once again."
Whatever the outcome of the election on May 21, the winning party has a difficult battle in easing cost of living pressures.
What about Bitcoin?
For those invested in Bitcoin and other cryptocurrencies, the interest rate hike will affect them as well.
BTC Markets' CEO Caroline Bowler said: “While the change in interest rates in Australia doesn’t directly impact the price of Bitcoin and other cryptocurrencies, the move today by the RBA coupled with wider interest rate increases across major economies, particularly the US, can have a significant impact on the price of Bitcoin and other crypto – with consequences felt by Australian investors. This is because the US is now the market epicentre for cryptocurrencies since China took a backseat.
“In particular, with the tightening of ‘loose money’ induced by the COVID-19 pandemic, we would anticipate a continued dip in trading volume overall, as it contracts alongside supply.
“However, Bitcoin has demonstrated inflation protection qualities and we’ve seen ongoing relative stability in the price of Bitcoin in 2022 with US inflation priced in since last November. We expect that stability in Bitcoin to continue.”
On the small cap front
- Apollo Minerals Ltd finished 14.81% higher.
- PolarX Ltd finished 5.26% higher.
- Meeka Gold Ltd finished 8.70% higher.
- Medallion Metals Ltd finished 10.20% higher.
- Legacy Minerals Ltd finished 3.23% higher.
- Strickland Metals Ltd finished 1.45% higher.
- Gascoyne Resources Ltd finished 3.70% higher.
- AuTECO Minerals Ltd finished 2.82% higher.
- Chase Mining Corporation Ltd finished 14.29% higher.
- Perpetual Resources Ltd finished 4.92% higher.
- Altech Chemicals Ltd finished 1.19% higher.