Australia’s cash rate officially rose by 25 basis points to 3.60% this afternoon, after the Reserve Bank of Australia decided another hike in interest rates was necessary to contain inflation.
The RBA also raised the interest rate on exchange settlement balances by 25 basis points to 3.50%.
Tuesday’s decision means the Reserve Bank has now increased the official cash rate 10 consecutive times since May 2022. The announcement was in line with market expectations that back-to-back rises would continue in March.
RBA governor Philip Lowe said that global inflation remained “very high”. In headline terms it is moderating, although services price inflation remains elevated in many economies, he said.
“It will be some time before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.”
Australia’s big four banks have all predicted rates will continue to increase steadily throughout the early months of this year, rising to a height of either 3.85% in April or 4.1% in May.
Elite Finance director and senior mortgage broker Matthew Posselt (pictured above left), said first home buyers were being disproportionately impacted by the RBA’s continued campaign to raise interest rates.
“As a first home buyer specialist I see a lot of people trying to get into the market for the first time,” Posselt said. “Increasing rates won’t affect most of the population who now have a long-running mortgage with a small balance and low repayments or all of the population that are either renting or boarding.”
He said it was recent buyers who face a “huge difference” in repayments and monthly cashflow.
“These changes are affecting the people who are already most worried about their cashflow and not the broader market.”
Successive rate increases from the RBA are causing a lot of customers to recheck their budgets and expenses, Posselt said.
“It is getting harder and they all just want to know when this will stop. I am getting worried, especially as the 3% assessment rate buffer has now been passed.”
Birdie Wealth director Nathan Smith (pictured above right) said his clients were “very aware of their budgets” in the current market, with “the sharp increases changing their spending and lifestyle habits”.
“Those on variable loans have been carrying the burden for the last 12 months,” Smith said. “As fixed rates expire, we hope to see to see the rates stabilise.”
The increases have made clients more aware of their current rates and more comfortable to switch lenders, Smith said, while some borrowers were feeling the pain more than others.
“Young families on reduced work hours seem to be feeling the pinch. Our clients are in contact with us more regularly for advice on budgeting and managing the increases, ” said Smith.
Posselt said it is getting harder to help first home buyers enter the market and get an understanding of what their repayments will look like in the future.
“With this uncertainty we are now buffering interest rates beyond current buffers to give our customers and idea of what their borrowing limits and repayments could be in the future,” Posselt said.
Smith said Birdie Wealth would continue to proactively reprice and reach out to clients every six months.
“While we can’t control the RBA, we can make sure our clients are always getting the most competitive offer from their lender,” he said.
On Friday, research from Mozo suggested that 73% of mortgagees will not be able to afford back-to-back rate increases if they continue past May.
NAB’s latest Financial Hardship report also found that four in 10 Australians are currently facing some form of financial difficulty, the highest numbers since the pandemic began.
