RBA raises rates in response to surging inflation
In major news from the RBA, the board has today decided to act by lifting the cash rate from 0.1% to 0.35%.
With the growing spectre of inflation in Australia — it’s now at 5.1% for the year — the RBA has responded by lifting rates for the first time in over 11 years.
As it outlined today following its board meeting, the RBA feels now is the right time to put the brakes on spending given the changing economic conditions in Australia.
And the RBA says brace for more rates rises over the coming year.
‘The Board judged that 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 RBA said in today’s statement.
‘The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected.
‘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.’
It wasn’t that long ago that the RBA was predicting that rates might ‘plausibly’ remain at 0.1% rate until 2023 or 2024.
In fact, only five months ago, the message out of the Central Bank was that it was very unlikely rates would rise even in 2022 with Australia being able to be ‘patient’ on rate rises.
However, patience has been replaced by urgency.
Today’s rate hike shows how much the world has changed since those earlier forecasts.
The Russian invasion of Ukraine hit petrol prices, floods in Australia caused increases in fruit and veg, and other factors have pushed up prices at the pump and supermarket.
It’s this surge in the cost of living that has forced a swift gear change, as seen by the RBA’s move today to pull the trigger.
And expect more rate rises, tips the RBA.
‘A further rise in inflation is expected in the near term, but as supply-side disruptions are resolved, inflation is expected to decline back towards the target range of 2 to 3 per cent.
‘The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4 and three quarter per cent; by mid 2024, headline and underlying inflation are forecast to have moderated to around 3 per cent.
‘These forecasts are based on an assumption of further increases in interest rates.’
This rate rise news is no doubt a big concern for Australian households paying off mortgages while also coping with sharp increases in the costs of living.
And analysts are tipping multiple rate rises over the next 12-24 months as Australia and the world address this inflation scourge.
But what would this mean for repayments in this country?
Today’s news means the average owner-occupier with a $600,000 debt and 25 years remaining on their mortgage will see repayments rise by around $74.
There are many loans and all are structured in different ways. But, for example, if cash rates reached 1% repayments would increase by more than $350 per month (based on all national capitals on a median value home of $818,307).
Recent history shows the RBA pushed down rates to a staggeringly low 0.1% in November 2020 at a time when Australia was still grappling with the first wave of COVID-19. But the Australian economy has powered back. It could be a bumpy ride for households paying off a mortgage.
‘The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,’ says the RBA.
‘This will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.’
It’ll be interesting to see how house prices react over the coming year if, as the markets predict, more rises are to come. An increase in rates is likely to have a cooling effect on Australia’s booming housing prices.
With all the news around rates, a home loan health check could really benefit your future financial plans. So, if you have a loan, let Mortgage Broker Group do the running around for you. We can find lenders that have deals that fit you and your circumstances.
And we are an accredited member of the Mortgage and Finance Association of Australia, so why not contact our team for advice and guidance?
Mortgage Broker Group also has the option of video conferencing.