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RBA Rates Update July 2022

05.07.22 | Marc Barlow | Reserve Bank Announcements

The RBA announced today that the cash rate will rise for a third month in a row, up from 0.85% to 1.35%.


Today’s 0.5% hike is another blow for those Australians paying off a home loan, with higher rates certain to be passed on again by the banks and lenders.


This substantial lift continues the Central Bank’s policy of increasing the cash rate to control surging inflation, as it explained today.


‘Global inflation is high. It is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity,’ said the RBA today.

‘Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role.

‘Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.’


The RBA added that inflation, in their opinion, would peak by year’s end and return to the 2-3% band in 2023.


So, expect a tough 2022 on the home loan repayments front with more increases likely and household budgets squeezed.


If you’re paying off a $500,000 mortgage, today’s 0.5% hike will add about $137 a month extra to the cost of repayments.


It’s been a big few months on the RBA cash-rate front. After almost 18 months of rock-bottom rates, the Central Bank changed tack in early May. With inflation ballooning to a worrying 5.1% for the year, the RBA raised rates from the historic low of 0.1% to 0.35%.


Then, in June, the RBA supersized a second increase. It upped the cash rate by a hefty 55 basis points to 0.85%.


And now, in July, it’s up again with another steep rise in the cost of borrowing money.


No wonder rates are the big talking point around dinner tables of those households paying off a home loan.


After all, it’s been over 11 years since the RBA raised rates at all, and now it’s gone up three times in as many months.


With the high cost of living (electricity, gas, food, petrol, materials) and rapid-fire rate rises, many are feeling the pinch as winter sets in for many across the country.


Of course, the RBA is taking this course of action for what it sees as good reason. Its charter includes contributing to ‘the economic prosperity and welfare of the Australian people’.


‘Today’s increase in interest rates,’ explained the RBA, ‘is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic.’


But what have rate rises to do with higher inflation?


Put simply, inflation is the rate of change in the level of prices of goods and services that households purchase. This is usually measured by the Consumer Price Index, which provides data about price increases for households on average by comparing a basket of goods.


The RBA board is hoping these cash-rate increases will dampen down household spending. This, in turn, should help bring inflation down to its target band (2-3%).


‘The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,’ added the Central Bank.


During the pandemic, fixed interest rates were low at around 2.5%. Those were good times, but now the landscape has dramatically changed.


Today’s rise will impact all those with a mortgage. Some may feel it more than others, though.


This third increase in as many months may not be the last with analysts tipping inflation will keep rising this year.


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.