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RBA Rates Update Aug 22

02.08.22 | Marc Barlow | Reserve Bank Announcements

The RBA has raised the cash rate for a fourth time in a row, lifting it from 1.35% to 1.85% today.


With surging inflation, the RBA is hiking its cash rate to help dampen down spending in the economy. And the RBA suggested that inflation could rise even more this year before potentially lowering in 2023 and 2024, as it explained today.


‘The Board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel. The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,’ the RBA said today.


With the banks and lenders set to pass on this rate to those paying off a mortgage, household budgets struggling with cost of living spikes are set for another hit.


The cash rate has now gone from 0.1% to 1.85% in just four helter-skelter months. In fact, it’s the first time since 1990 that the RBA has hiked the cash rate four months in a row. Bunker down for the rough ride to continue over the next six to 12 months with more rate pain coming, according to the RBA.


‘Inflation is expected to peak later this year and then decline back towards the 2–3 per cent range,’ predicted the RBA today.


‘Medium-term inflation expectations remain well anchored, and it is important that this remains the case.’


The Bank’s central forecast is for CPI inflation to be around 7 and three quarter per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.


This is when we may see rates plateau or even fall. Though, of course, in such an unpredictable world it’s difficult to make any such assessment. After all, who could have anticipated Russia’s invasion of Ukraine and the economic ramifications on the world economy?


‘Global factors explain much of the increase in inflation,’ noted the RBA, ‘but domestic factors are also playing a role.


‘There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy. The floods this year are also affecting some prices.’


These are challenging times as households look to belt-tighten in any way they can. Though it shouldn’t be a surprise given Central Banks around the world have been raising rates for much of this year. In July, the Reserve Bank of New Zealand (RBNZ) increased its cash rate from 2 to 2.5 per cent, while the Bank of Korea (BoK) also raised rates by 50 basis points to 2.25 per cent.


The Central Bank added: ‘The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path.’


If these rate hikes have you worried, contact Mortgage Broker Group.


We can help with useful tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household prices.