The RBA today upped the cash rate to 3.85%, thereby returning to a money tightening policy it has used for most of the last year.
Last month borrowers enjoyed a first pause in the hikes since April 2022 with the RBA holding the rate steady at 3.60%.
But that was just a temporary reprieve with more pain for Sydneysiders on variable home loans today.
The Central Bank of Australia said today the battle to muzzle inflation is ongoing.
‘Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,’ explained the RBA today.
‘Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.’
Today’s news was a surprise given the inflation figures. Australia’s inflation rate eased during the first three months of 2023 with the quarterly increase the lowest since the end of 2021.
The headline consumer price index (CPI) for the first three months of 2023 was at an annual rate of 7.0%, below the previous quarter of 7.8% reported in December.
Clearly, though, the board at Martin Place felt there wasn’t enough in this and other economic data to warrant another pause.
Which puts the spotlight again on how the RBA decides its monetary policy. Today’s rise comes amid the findings of an independent report titled “An RBA Fit For The Future” being released.
It questioned the decision-making process of the RBA and recommended a new monetary policy board be set up within the Central Bank.
Meanwhile, in Australia fears of a recession later this year are growing. Those concerns centre on the scenario later this year for a large number of mortgage holders.
When a fixed term mortgage ends, there is the option to either enter into a new fixed rate or switch to variable rates. Either way, monthly repayments are set to soar, affecting hundreds of thousands of fixed-term mortgage holders.
This scenario has been coined a “Mortgage Cliff”, and we have advice on how to manage this.
And to this point, rates could go up even more, with the RBA saying it’s keeping its options open.
‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.’
Strap yourself in, we could hit 4% by the time winter is upon us. Sydney property prices actually increased last month, so it’ll be interesting to see what this decision has on real estate in the short term.
If rates have you concerned, contact Mortgage Broker Sydney. Our friendly brokers can meet you wherever is most convenient: your home, office or local cafe. We’re flexible.
We can also help with tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household prices.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!