Interest rate hike tomorrow to bring ‘a lot of pain’

The Reserve Bank is expected to hike interest rates again tomorrow, heaping new mortgage pressure on millions of Aussie households whose monthly budgets are already straining.

Economist Richard Denniss of the Australia Institute predicted interest rates will rise by between 0.25 per cent and 0.4 per cent, causing "a lot of pain" for many.

Some economists think the RBA could move even more aggressively, hitting mortgage holders with a 0.5 per cent spike.

The Reserve Bank will meet tomorrow set to lift interest rates for the second time interest rates for the second time in as many months

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For a 30-year, $1 million mortgage, an RBA bump of 0.25 per cent rise would increase monthly repayments by $131, with a 0.5 per cent rise translating to a hefty $265.

"The Reserve Bank has signalled we're going to see higher interest rates over the next six to 12 months," Denniss warned.

"That will mean mortgage payments rising by thousands of dollars depending on how big people's mortgages are."

Given recent jumps in inflation and increased costs of food, petrol and energy, Denniss said employers now needed to start raising wages, otherwise the government may need to "step in and push things along".

"Previously the Reserve Bank has said it wouldn't increase interest rates until wages started to rise (but) that's clearly not happening," he said.

"We're seeing the interest rates go up now and wages are yet to rise."

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Some economists are hedging their bets on the standard quarter of a per cent interest rate hike, but others say the RBA could move much more aggressively and double it to 0.5 per cent.

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Employers needed to show "some willingness" to negotiate better pay or the government and Fair Work Commission should consider intervening, he said.

According to latest CPI figures, vegetable prices rose 6.6 per cent in the first three months of the year.

Fruit prices have gone up by about 4.9 per cent, and a two-litre bottle of Coke now costs 50 per cent more.

Last month the Reserve Bank caught everyone off-guard by lifting rates by 25 basis points, when a move of 15 points was widely expected.

The RBA will make its announcement at 2.30pm (AEST) tomorrow.

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