RBA lifts cash rate for first time in 11 years
The Reserve Bank has increased the cash rate by 25 basis points to 0.35% - the first time Australia has witnessed an official rate hike in more than 11 years.
In his monetary policy statement released after the RBA's May board meeting, Governor Philip Lowe maintained that it was time to pull back on the "extraordinary monetary support" it had provided during the height of the pandemic.
"The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions."
"The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases."
While only one in five economists who took part in Finder's latest RBA Cash Rate Survey correctly predicted a cash rate rise today, there's a firm consensus that this is just the start of things to come.
Many experts are predicting that the Reserve Bank will likely lift interest rates more than once by the end of the year, including Monash University's Professor Mark Crosby.
"It will be very clear that inflation is now baked in, and so it is time to move rates towards some level of normality. The aim for the cash rate should be to 1.5% by year end at a minimum."
How will mortgage holders be impacted?
With the cost of living issue dominating headlines and much of the current election campaign, the big focus coming into today's decision was the impact a rate rise would have on the millions of Australian households with a mortgage.
As is the norm following any rate rise from the Reserve Bank, Australian banks and lenders will more than likely begin moving their home loan rates higher in the coming days. Unfortunately for borrowers - at least those on a variable rate - this will equate to higher mortgage repayments at a time when many other household costs are also soaring.
"The question now is - which lenders will be the first to pass on the rise to borrowers?" asks Mortgage Choice's national sales director, David Zammit.
"Today's decision means lenders will start to increase the pricing on their variable rate home loan products and we've already seen fixed rate pricing rise significantly. That said, the market remains extremely competitive and banks will be looking to attract customers through initiatives like cash-back offers, making now a great time for first time buyers and borrowers a like to shop around."
So how would a 25 basis point hike impact a relatively typical home loan? Here's an example based on an increase to a variable rate of 3.00% on a mortgage being paid off over 20 years.
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Of course, that's just one example, but you can use Moneysmart's mortgage calculator to calculate the impact of an interest rate rise on your own loan.
The next date mortgage holders may want to circle in their diaries is June 7 when the Reserve Bank board meets for its next monetary policy decision.
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