RBA lifts cash rate to 2.35%
Another month, another rate rise. The RBA today lifted the cash rate for a fifth time this year, increasing it from 1.85% to 2.35%.
The cash rate has shot up from 0.1% in April to today’s rate of 2.35% following a record five consecutive hikes.
And the cash rate could rise again this year as inflation continues to surge, as the RBA noted today.
‘The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy,’ said the RBA today.
However, the RBA ‘expects’ to increase interest rates further over the coming months. And it noted that the ‘full effects of higher interest rates are yet to be felt in mortgage payments’.
‘Global factors,’ noted the RBA, ‘explain much of the increase in inflation … the board is committed to returning inflation to the 2–3 per cent range over time.’
It’s been a worrying winter for some Australians paying off home loans as banks and lenders pass on these RBA rises.
Coupled with a sharp spike in the cost of living, mortgage repayments have shot up, with some households paying an extra $770 a month compared to May this year.
Today’s rise could take that figure up to $1000 for some mortgage holders.
For those who didn’t get ahead on their mortgage repayments during the pandemic, it’s a difficult time. Add to this, a sharp rise in the cost of living and there is plenty of concern out there.
But it’s not all doom and gloom.
There is a jobs boom in Australia with record low unemployment rates, while retail spending figures are up.
However, together with global factors pushing up costs at the bowser, the annual inflation rate has spiked to 6.1% (well above the 2-3% inflation band preferred by the RBA).
Australia’s Bank’s central forecast is for inflation to hit 7-8% this year, dropping to 4% in 2023 and back around 3% in 2024. Though, of course, these forecasts aren’t always accurate and can change as global and local conditions change.
In fact, former federal Treasurer Peter Costello has slammed the RBA’s forecasting nous, saying it misjudged the economy, with borrowers now facing steeper interest rate hikes because of the Central Bank’s failure to act earlier on surging inflation.
It’s a tricky balancing act as the RBA keeps one eye on inflation while trying to minimise financial strain on Australian households and keeping the economy on ‘an even keel’.
‘The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments,’ added the RBA.
However, the RBA noted the continuing strength of the Australian economy, pointing to ‘an unemployment rate which is at its lowest rate in almost 50 years’.
To be fair, Australia’s cash rate comes from a very low base, as you might recall. Rates were lowered to “emergency” levels for most of the pandemic as the economic upheaval battered Australia’s economy and unemployment spiked.
But that was then, and this is now. A perfect storm of economic conditions is proving tricky for the RBA, and central banks around the world.
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.
We have several convenient Melbourne CBD locations and our service is 100% free to you.