Unanticipated move by the Reserve Bank of Australia leaves mortgage holders grappling with increased repayments as inflation continues to surge.
The Reserve Bank of Australia (RBA) has unexpectedly executed its 12th interest rate rise since May of the previous year to combat the continuously escalating inflation rates. This unforeseen move by RBA has led to an increase in the cash rate target by 25 basis points, now standing at 4.10 per cent, leaving the financial markets and most economists, who anticipated a halt in rate hikes for June, startled.
The current rate hike implies an additional $1,264 in mortgage repayments, considering the average Australian mortgage, since the cash rate was at a meagre 0.10 per cent in April 2022.
Australia's base interest rate has peaked at its highest since April 2012.
Philip Lowe, the RBA Governor, has defended this increase as a crucial measure to control inflation. "Even though inflation in Australia has surpassed its peak, it is still high at 7 per cent, and it will be a considerable time before it reaches the target range," said Lowe. He added that the rate hike is meant to boost confidence in returning inflation to its target in a reasonable timeframe.
While the economy displays signs of deceleration, Lowe stated that inflation is still far from the central bank's target band of between 2 and 3 per cent. Higher interest rates and cost-of-living pressures are leading to a significant slowdown in household spending.
Furthermore, Lowe hinted at the possibility of additional rate hikes to ensure inflation returns to target, promising that the RBA remains committed to decreasing inflation. "The Board will keep a close watch on global economic developments, household spending trends, and the outlook for inflation and the job market. The Board is unwavering in its mission to bring inflation back to target and will do what is necessary to attain that," he assured.
Graham Cooke, the head of consumer research at Finder, said this decision surprised many. He pointed out that
Australians with an average loan size of $577k will now pay over $15k more annually on their mortgage than in April last year. That's an extra $1,200 every month – a substantial amount of additional money to be outlaying on your mortgage.
Understanding and navigating the ever-changing financial landscape is essential in today's economic climate. Particularly now, with the Reserve Bank of Australia's decision to raise interest rates, it's critical for individuals and businesses to remain informed and adaptable. At Fync, we are committed to supporting our clients through these shifts, ensuring they're equipped to manage the evolving monetary conditions.
Reach out to our team of financial specialists at Fync to ensure you're well-prepared for the implications of these rate increases. Our comprehensive strategies provide peace of mind and robust financial plans, safeguarding your long-term wealth and financial stability in the face of changing economic scenarios.
*Disclaimer: Please note that the information provided in this communication is for general informational purposes only and should not be construed as professional advice. It is not intended to substitute for personalised financial, legal, or tax advice. Please consult a qualified professional before making any decisions based on the information provided.