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Reserve Bank interest rates: RBA lifts the cash rate to 0.35%

After its meeting on the 3rd of May 2022, the Reserve Bank of Australia (RBA) lifted the official cash rate to 0.35%. 

In November 2020, the RBA set the official cash rate at a record low of 0.1%. By that time, the RBA announced that this number will not be changed until 2024. 

However, after the supply chain issues brought about by the pandemic as well as the Russian invasion of Ukraine, the world saw a drastic rise in the inflation rate. 

The United States, for example, has been looking at an 8.5% inflation rate since the end of March 2022. 

As for Australia, it is much better than the US economy. Still, the historically high numbers are pretty alarming. Inflation has reached 5.1%, breaking through the ceiling market estimates of 4.6%. 

We’ve all seen and felt this number manifest in the form of fuel price surges as well as the increase in building costs. As an effect, the price of food has increased as well. Petrol prices climbed up 11% while building a new house now costs 5.7% more. 

The consumer price index (CPI) has also leaped to 2.1% in the first quarter. That is significantly higher than the market forecast of 1.7%. This has been the highest increase we’ve seen since the early 2000s. 

The RBA cautioned that Australians should expect another hike over the coming periods as the central bank gauges strategies to curb inflation. 

By raising interest rates, the government aims to press the brakes on spending which will help ease the overheating of the economy. 

Now, let’s address a question many ordinary citizens may have in mind. 

What is the effect of a 25 basis point increase?

While it isn’t much of a damage to many sectors, homeowners should expect a change in the rates of home loans. 

Rate City, in their recent sample comparison, shows that an owner-occupier who owes $500,000 will add $39 in repayments with the current 0.25% difference. If the prediction of a 2% cash rate comes true, we could be seeing a monthly addition of up to $511. 

 Although the 0.25 raise in the official cash rate seems minor, the RBA has already warned that there could be a series of rate lifts this year. In fact, some experts are saying that there could be a monthly increase for the whole year of 2022. Some predictions look at 2.5% around Christmas time this year. Some comments from economic experts center around this move by the RBA as too conservative. 

The RBA has clearly stated that this will not be the only lift in the periods to come. Now is the best time to check the health of your mortgage if you have one. Study the possibilities if you are just about to take out one.

Either way, the best person to help you right now is a mortgage broker. Contact us and we can schedule you for consultation with one of our brokers. We will assess your situation and assist you in choosing the best options for you in the long run.