Despite the previous 10 rate rises over the last year not expecting to take full effect until later in the year, the Reserve Bank of Australia (RBA) has surprised many observers with a 0.25 basis point rise that takes the cash rate to 3.85%.
The RBA stated inflation has passed its peak, but 7 per cent is still too high for comfort and it will be some time until the rate is in the target range of 2 to 3 per cent.
The RBA is particularly concerned with service price inflation which is still very high and may not yet have peaked. Service price inflation is considered stickier and may be baked into our prices in the future. The RBA will be hoping that this latest move will restrict the economy and help to slow demand in the services space to ease price rises.
Despite this, both energy and rental costs are not responsive to interest rate moves, so it is likely inflation in these areas will prove very sticky also.
We are now highly likely to be at the peak of the monetary policy tightening cycle, as the current settings will put enormous pressure on borrowers, particularly those that secured a home loan in the past two years.
Rate rises are also causing borrowers to experience challenges with refinancing after coming off fixed rates or those who are just looking to save on their existing high variable rates as the large buffer put in place by APRA remains and is squeezing borrowers serviceability resulting in some borrowers not being able to avoid uncompetitive rates.
Please reach out to discuss how the RBA’s decision impacts your situation and if you have not yet obtained a loan review to secure a more competitive rate and the many sign-up incentives available from lenders get in touch with one of our Finance Brokers asap!
— May RBA Update —
More Interest Rate Pain!
For the 11th consecutive month in a row the Reserve Bank of Australia seems to think we still need to cool our spending!
Pretty hard when everything now costs a lot more & many services are only just starting to raise prices…
Anyway.. there are firm signs inflation has peaked and rate rises also!
The cash rate increased another 0.25% this month to 3.85% and is the highest level since May 2012.
Look out new mortgage repayments!
Read the full statement from the RBA here.