Drumroll … The RBA has hiked the official cash rate for the 12th time since April 2022, increasing it to 4.10%. How much will this increase your monthly repayments? And how long does Philip Lowe plan to keep marching to this beat?
Confused about which interest rate change happened when? Soho’s RBA Rates News article reports every decision made since May 2022.
Another month, another 25 basis point cash rate rise. It’s now apparent the cash rate pause back in April was nothing but a false peak.
Reserve Bank of Australia (RBA) Governor Philip Lowe explained in a statement that while inflation in Australia had passed its peak, at 7% it was still too high and it would be some time yet before inflation was back in the 2-3% target range.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe,” he said.
Governor Lowe added that some further tightening of monetary policy may be required to ensure that inflation returned to target in a reasonable timeframe, but that would depend upon how the economy and inflation evolved.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” Governor Lowe explained.
“Recent data indicate that the upside risks to the inflation outlook have increased and the Board has responded to this.”
Suggested Reading: When Are Interest Rates Expected to Go Down in 2023?
How much could this latest hike increase your mortgage repayments?
Unless you’re on a fixed-rate mortgage, the banks will likely follow the RBA’s lead and increase the interest rate on your variable home loan very shortly.
Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.
This month’s 25 basis point increase means your monthly repayments could increase by almost $76 a month. That’s an extra $1,135 a month on your mortgage compared to 3 May 2022.
If you have a $750,000 loan, repayments will likely increase by about $114 a month, up $1,702 from 3 May 2022.
Meanwhile, a $1 million loan will increase by about $152 a month, up about $2,270 from 3 May 2022.
Further Reading: Want to know if rent prices will go down in 2024? Explore Soho’s article.
Why increase interest rates when inflation is high?
Increasing interest rates when inflation is high is a monetary policy tool used by central banks to manage the economy and stabilize prices. While it may seem counterintuitive, there are several reasons behind this approach.
Firstly, higher interest rates act as a measure to curb excessive borrowing and spending in the economy. By making borrowing more expensive, individuals and businesses are inclined to reduce their borrowing and consumption, which can help to cool down an overheated economy.
Secondly, raising interest rates can attract foreign investment, as higher rates provide better returns on investments. This can strengthen the currency and help to manage inflationary pressures by potentially reducing the cost of imports.
So, this all points to housing values dropping. When will Australian house prices crash? Well, they might not. Experts are predicting the housing market will withstand these changes.
Moreover, increasing interest rates can also incentivise saving. When interest rates are higher, individuals are more likely to save their money in interest-bearing accounts rather than spend it. This can help to reduce the demand for goods and services, which can contribute to price stability.
It’s important to note that central banks carefully assess economic indicators, including inflation rates, employment levels, and overall economic growth, to determine the appropriate timing and magnitude of interest rate adjustments. The goal is to strike a balance between promoting economic stability and managing inflationary pressures to support long-term economic health.
Concerned about how you’ll meet your repayments?
The impact of these 12 consecutive rate rises is undoubtedly being felt by households across the country. If your household is among them, please take solace in knowing that you are not alone in facing these challenges.
Likewise, many of us with fixed-rate home loans may be wondering about their options once the fixed-rate period comes to an end. Rest assured, we are here to assist you in exploring the possibilities.
Depending on your circumstances, there are various avenues we can explore together. This may involve refinancing, potentially adjusting the loan term to reduce monthly repayments, considering debt consolidation, or even building up a financial cushion in an offset account to prepare for future rate increases.
If concerns about meeting your repayments in the future are weighing on your mind, contact Soho Home Loans. The sooner we can sit down with you and devise a plan, the better equipped we will be to help you navigate any further rate hikes that may arise.
Your financial well-being is our priority, and we are committed to supporting you every step of the way.
