After keeping rates unchanged for the past four meetings, the Reserve Bank has started raising its cash rate target again, with a quarter of a percentage point increase taking the benchmark interest rate to 4, 35 percent.
- At 4.35 percent, the cash interest rate is at its highest level in 12 years
- The rate hike will add about $76 a month to payments on a $500,000 home loan.
- Experts say mortgage borrowers can still find variable mortgage rates below 6 percent.
It is the latest in a series of steep rises that have taken the cash interest rate from a record low of 0.1% in early May 2022 to the highest level since November 2011.
Reserve Bank Governor Michele Bullock warned in her post-meeting statement that it might not be the last.
“Whether further tightening of monetary policy is necessary to ensure that inflation returns to its target within a reasonable time frame will depend on the data and the evolution of the risk assessment,” she said. noted, in what will be interpreted as a very neutral statement on the outlook. for prices.
The latest increase will add around $76 a month to repayments on a $500,000 home loan, with monthly mortgage costs having risen by more than $1,200, or 52 per cent, on such a loan since the RBA began increasing it .
However, RateCity’s Sally Tindall said the average mortgage customer had so far softened the blow by refinancing their loan to get a more competitive rate.
“Our analysis shows that the average homeowner has reduced over 2.5 standard RBA increases from their variable rate, which is fantastic. What’s even better is that on average, there are probably thousands of borrowers who have successfully secured themselves. a much bigger reduction than that,” she noted.
“If you are a homeowner and have a good track record of paying off your debts, you should aim for a rate below 6 per cent.”
RateCity said it estimated there would still be around 20 lenders with rates below 6 per cent even if they passed on the latest rate increase in full.
However, customers who have neither haggled nor refinanced are likely to face an average variable rate of 7.11 per cent following today’s RBA decision.
A widely expected rate hike, but not universally supported
The move was widely expected by economists and financial markets, which had forecast about a two-thirds chance that rates would rise today.
In fact, before today’s meeting, financial markets were viewing a rate hike as certain by February, with about a 50 percent chance of another hike before the middle of next year.
Anneke Thompson, chief economist at credit reporting agency CreditorWatch, said the latest rate hike would hit already struggling industries hardest, while doing little to reduce the inflation.
“The sad reality is that goods or services that are still experiencing high levels of inflation are not subject to any demand pressure, so this rise in interest rates will have little impact on the prices of rent, fuel , insurance and public services,” she argued.
“On the contrary, this increase will be more burdensome for companies that are already on the front line in the fight against inflation, such as the food and beverage, retail and construction sectors.
“Demand in these sectors has already contracted, and higher interest rates will force consumers and potential builders/renovators to further rethink their future spending decisions.”
In her statement, Ms Bullock acknowledged that the burden of rising interest rates was felt unevenly across the community, creating risks to the economic outlook.
“There are uncertainties about the effects of monetary policy and how business decisions on prices and wages will respond to slowing growth in the economy at a time when the labor market remains tight,” she warned.
“The outlook for household consumption also remains uncertain, with many households facing painful financial difficulties, while some benefit from rising house prices, large savings reserves and interest income higher.”