RBA hikes cash rate to 1.35% at July 2022 meeting
The Reserve Bank's rush to increase interest rates in an attempt to dampen rising inflation has continued today, with the central bank lifting the official cash rate by 50 basis points to 1.35%.
This afternoon's rate rise was the third in as many months by the RBA, and the size of the hike means that the cash rate is now the highest it's been since May 2019.
"Inflation in Australia is high, but not as high as it is in many other countries," says Reserve Bank governor, Philip Lowe.
"Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices."
Lowe noted that the Reserve Bank would be keeping a close eye on household spending though.
"One source of ongoing uncertainty about the economic outlook is the behaviour of household spending. The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates."
With this month's monetary policy decision now done and dusted, the next point of interest for the bank will likely be the release of quarterly inflation data on July 27 which comes out six days before its August board meeting.
Many already believe that the RBA will move to lift rates once again in August though. A third (34%) of economists and experts polled as part of comparison website Finder's latest RBA Cash Rate Survey said that they expect a fourth consecutive rise next month.
In comments made as part of the survey, economist and RMIT lecturer, Sveta Angelopoulos, said that the RBA was better off hiking interest rates quickly rather than delaying.
"Inflationary pressures need to be addressed. Moving quickly and sharply in the short term will send very concrete messages to markets and may avoid longer-term pain down the track."
More pain for mortgage holders
While today's decision was largely anticipated, it will still come as an unwelcome hit to the three million Australian households with a mortgage. That's because banks and lenders haven't been shy about passing on the RBA's rate hikes to their home loan customers.
"This year we've seen variable interest rates climb following two rate hikes," says banking expert at financial comparison website Mozo, Peter Marshall. "Since the start of June, the average variable interest rate has increased to 40 basis points to 3.65% which is a result of 94 lenders in the Mozo database lifting rates.
"Right now, variable interest rates are back to pre-pandemic levels and fixed rates have exceeded pre-pandemic levels and are similar to rates last seen in 2015."
Lowest variable home loan rates
|Credit Union SA||Variable Rate Home Loan||2.44% (2.88% comparison)|
|P&N Bank||& Basic Home Loan||2.44% (2.44% comparison)|
|Queensland Country Bank||Ultimate Home Loan||2.49% (2.88% comparison)|
|Homeloans360||Owner Variable Home Loan||2.54% (2.54% comparison)|
|Pacific Mortgage Group||Standard Variable Home Loan||2.54% (2.54% comparison)|
Source: Mozo database, July 4, 2022. Rates available on owner occupier, principal & interest home loans at $400,000, 80% loan-to-value ratio.
And given their recent form, there's every likelihood that lenders will also pass on today's interest rate rise in full. Once that flows through, an average homeowner with a $615,310 mortgage being paid off over 25 years would see their monthly repayments increase by $169, an analysis by Mozo shows.
Savings rates show signs of life
At the same time as home loan interest rates have been marching higher, term deposit and savings account rates have finally started to tick up as well.
"While rate hikes put further pressure on borrowers, we've finally seen some improvement to savings rates," says Marshall. "Bonus and introductory savings rates are slowly growing, but the real improvement can be seen in term deposits as the highest 12-month term deposit in the Mozo database is 3.15%."
Highest 12-month term deposit rates
|Gateway Bank||Term Deposit||3.15%|
|MyState Bank||Online Term Deposit||3.05%|
|Bank Australia||Term Deposit||3.00%|
|Great Southern Bank||Term Deposit||3.00%|
Source: Mozo database, July 7, 2022. Rates are available to eligible account holders over the age of 18 on a balance of $25,000.
In fact, because the highest interest rates being offered on 12-month term deposits are considerably more generous than those being offered with savings accounts at present, Marshall says that savers might benefit from taking a serious look at term deposits.
"Term deposits are a great option right now, if you are in a position to lock some money away, as they have increased ahead of at-call savings rates."
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