RBA hikes cash rate to 2.60%
The RBA has done it again with the cash rate rising from 2.35% to 2.60% today.
Most major bank economists tipped another rise, and the Central Bank obliged with a sixth increase in a row since May this year.
And with this news, borrowers paying off home loans must brace for higher rates as most banks and lenders will pass on the Central Bank increases.
The RBA today doubled-down on its tough-love measures to help control surging inflation, which it predicts will increase in the coming months.
‘As is the case in most countries,’ said the RBA today, ‘inflation in Australia is too high. The Board is committed to returning inflation to the 2–3 per cent range over time. Today’s increase in interest rates will help achieve this goal.’
It’s incredible to think that the RBA hadn’t raised the cash rate in over a decade. Then, in May this year, we saw the first in a subsequent procession of hikes.
So, why the six hikes?
Inflation has been rising in Australia and is currently at an annual rate of 6.1%. This is well above the RBA’s preferred band of 2–3%. And the Central Bank believes it will exceed 7% this year. But there’s another reason rates are rocketing up.
The US Federal Reserve last month hiked rates for a third time in a row. When there’s a gap between the two countries’ interest rates, say experts, it puts downward pressure on the Aussie dollar and upward pressure on inflation.
This means the wider the cash-rate gap, the more the RBA will feel pressured to lift the rate in order to support our dollar.
It is a high-wire act that is testing the mettle of the RBA: How to control inflation without potentially crashing Australia’s housing market prices or pushing the country into recession?
It’s also testing the patience of many households dealing with spiralling costs of borrowing money and living expenses.
Of course, the smart borrowers got ahead with their payments before and during the pandemic when rates were at historically low levels. Now it’s payback time, so to speak.
For instance, including all the rate increases this year so far, today’s 0.25% hike means owner-occupier borrowers with a $500,000 debt and 25 years left on their loan, will pay a total of an extra $687 per month approximately. Ouch.
‘A further increase in inflation is expected over the months ahead, before inflation then declines back towards the 2–3 per cent range,’ added the RBA.
‘The [RBA board] expects to increase interest rates further over the period ahead… the size and timing of future interest rate increases will continue to be determined by incoming data.’
That said, there’s a job boom right now. Good news for some, though this isn’t helping inflation, with retail sales remaining strong.
It’s a tricky set of economic conditions. And it’s all made more frustrating by the fact that in 2021 the RBA forecast rates to remain low till at least 2024.
The Central Bank got that one wrong. But now the RBA expects inflation to start easing by 2023.
We shall see if that prediction comes true or not.
If these rate hikes have you concerned, 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.
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