The Reserve Bank of Australia (RBA) increased the official cash rate by 25 basis points to 4.10% at the last meeting of this financial year.
- The RBA has increased interest rates substantially over the past twelve months and is now within sight of the finishing line.
- Inflation, currently at 7%, remains sticky due to rising prices in the services sector. Hence, official interest rates are unlikely to decline this year.
- The RBA is concerned about the negative impact of high inflation on the economy, family budgets and savings, business planning, investment, and income inequality.
- The Board is determined to return inflation to target and will take necessary measures to achieve that goal – so further increases may still be necessary.
Despite numerous calls in the media of an impending recession and housing market crash, there have been very few signs of these in the period since Christmas. In fact, ongoing supply constraints and record levels of net migration have combined to propel housing prices in the first half of this year. In addition, a tight labour market has seen workers maintain high levels of job security, largely offsetting the impact of higher interest rates on consumer confidence.
However, the elephant in the room is persistently high inflation. The monthly Consumer Price Index (CPI) accelerated in April, driven by rising rents, a lift in holiday travel costs, and higher transport prices, following the unwinding of the temporary cut in the fuel excise last year. The good news is that inflation is well below the peak reached in December, and the annualised increase over the last few months is within arm’s length of the top of the RBA’s target band. If wage growth remains moderate, or there is an improvement in productivity, then the cash rate is unlikely to rise to the levels seen in places like NZ, the US and UK. Interest rate expectations have recently increased, but the peak should remain below 4.5%.
When it comes to home loan interest rates, we are still seeing significant variations between the lenders as well as attractive cashback offers and rate discounts for switching, so it’s a great time to review existing lending – Lock in a chat with our Lending Specialists here >
