RBA raises cash rate to 1.85%, marks fastest pace of increase since 1994

The RBA stuck to its “new normal” at its August monetary policy meeting, raising the key rate by 50 basis points to 1.85%.

After consecutive increases of 50 basis points, the RBA has now raised the cash rate for four consecutive months.

This led to a tightening of 175 basis points to see the cash rate hit its highest point in six years.

For homeowners with an average size mortgage, an interest rate of 3.00% per year over 30 years rising to 4.75% per year in the last four months means paying $615 more in interest charges each month.

Reserve Bank Governor Dr Philip Lowe said Australia’s economy is expected to continue to grow strongly this year, but a key source of uncertainty continues to be household spending behavior.

“Rising inflation and rising interest rates are putting pressure on household budgets. Consumer confidence has also fallen and house prices are falling in some markets after strong increases in recent years,” said Dr. Lowe.

“By working the other way, people find jobs and get more hours of work. Many households have also built up significant financial reserves and the savings rate remains higher than it was. before the pandemic.

“The Council will pay close attention to how these different factors balance each other when assessing the appropriate monetary policy framework.”


Finspo CEO and co-founder Angus Gilfilian said the steep rate hikes were putting significant pressure on household budgets.

“Theoretically, households should still be able to pay their mortgages because banks are required to assess customers at rates 3% above their actual interest rate,” Gilifilian told Savings. com.au.

“However, coupled with the rising cost of living, this will start to make it difficult to balance household budgets.”

The cash rate hike is no shock to economists, with many expecting the RBA to hike another 50bps in August, although some were open to the possibility of a 75bp hike basis points.

Eleanor Creagh, senior economist at PropTrack, said despite with the cash rate rising at its fastest pace since 1994, this was widely expected as the RBA signaled its desire to “get ahead of the curve” and “do what is necessary” to overcome the challenge of high inflation.

“The economy entered the tightening cycle with strong momentum and although consumer confidence has fallen, the labor market is tight, the unemployment rate is at its lowest level in 48 years, job vacancies are at record highs and trading conditions remain strong,” Ms Creagh said. .

“These conditions will allow the RBA to continue raising the target cash rate towards its estimates of the neutral rate, while monitoring household spending as interest rates rise – a key source of uncertainty.

“How household spending is holding up amid rising inflation and falling house prices, versus buffers of savings and wealth, and hopefully wage growth stronger, will be crucial in determining the loss of the economy’s conditions and how much and how quickly the cash rate increases.”

Westpac chief economist Bill Evans expects the RBA to hike another 50 basis points in September, taking the cash rate to 2.35%.

“A revised profile sees the Board raise the cash rate by a further 0.5% in September to 2.35% – close to the Governor’s neutral estimate of ‘at least 2.5%,'” said Mr Evans.

CommBank economists previously advised the RBA to cut the cash rate by a peak of 2.6% from the end of 2023, while Westpac and ANZ now expect a peak above 3% with cash rate cuts by mid-2024.


Are you buying a house or looking to refinance? The table below shows home loans with some of the lowest interest rates on the market for homeowners.



Lender


Variable More details
ALREADY INCLUDES RBA RATE INCREASE IN JULYUNLIMITED WITHDRAWALS

Smart Booster Home Loan Discounted Variable – 2 years (LVR
  • Already includes July RBA rate increase
  • Fast turnaround times, can meet 30 day settlement
  • For purchase and refinancing, down payment min 20%
  • No ongoing or monthly fees, add 0.10% compensation

Variable More details
REFINANCING ONLY

Variable Rate Home Loan – Refinance Only

  • A low variable rate home loan from a 100% online lender. Supported by the Commonwealth Bank.
Variable More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees – None!
  • Unlimited additional refunds
  • Easy online application, quickly find out if you are approved!
  • Redraw – Access your extra payments if you need them
  • Use the app for loan information to help you pay off your home loan faster

Careful variable real estate loan (capital and interest) (LVR
  • No ongoing fees – None!
  • Unlimited additional refunds
  • Easy online application, quickly find out if you are approved!
  • Redraw – Access your extra payments if you need them
  • Use the app for loan information to help you pay off your home loan faster

Variable More details
NO CONTINUING FEES
  • No ongoing fees – None!
  • Unlimited additional refunds
  • Easy online application, quickly find out if you are approved!
  • Redraw – Access your extra payments if you need them
  • Use the app for loan information to help you pay off your home loan faster

Yard PAYG home loan (principal and interest) LVR ≤ 80%

  • No ongoing fees – None!
  • Unlimited additional refunds
  • Easy online application, quickly find out if you are approved!
  • Redraw – Access your extra payments if you need them
  • Use the app for loan information to help you pay off your home loan faster


Basic criteria: a loan amount of $400,000, variable, fixed, principal and interest (P&I) real estate loans with an LVR (loan-to-value) ratio of at least 80%. However, the “Compare mortgages” table allows calculations to be made on the variables selected and entered by the user. All products will list the LVR with the product and price list which is clearly published on the product supplier’s website. Monthly repayments, once the basic criteria are modified by the user, will be based on the advertised prices of the selected products and determined by the loan amount, repayment type, loan term and LVR as entered by the user. user/you. *The comparison rate is based on a loan of $150,000 over 25 years. Please note: this comparison rate is only true for this example and may not include all fees and charges. Different terms, fees or other loan amounts may result in a different comparison rate. Rates correct as of August 2, 2022. See disclaimer.


Image by Michael Krahn via Unsplash

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