Interest rate rises in brief: RBA moves see belts tighten further

The Reserve Bank’s 0.50% increase to the official cash rate this week has typically been met with a range of headlines and reactions.

Let’s recap:

-The new cash interest rate is 2.35%, the highest level since 2015.

-This is the fifth month in a row of rate rises and therefore a move that some are calling a “historic decision”.

-Increasing to 2.35% has been startling because it’s been a very rapid rise from April’s all-time low of 0.10%.

-The chief reason given for these interest rate increases is that the RBA wants to combat inflation, which has escalated in 2022. 

-The current inflation rate is 6.1% as of June, 2022. 

-According to the Reserve Bank of Australia, “The Board is committed to returning inflation to the 2–3 per cent range over time. It is seeking to do this while keeping the economy on an even keel.”

-So, this rate rise comes amid higher living costs and greater pressure on family budgets.

-Rate hikes tend to impact homeowners in a delayed fashion, so it’s expected that the latest will begin to affect mortgage holders in late 2022.

-Flow on effects of the RBA rate hikes? Economic experts suggest most consumers will have reduced spending power at Christmas time.

-Many businesses that rely on discretionary spending will also likely be impacted by subdued buying activity.

-Several experts warn that these relentless rate increases will cause a recession. Some say the rises are being done ‘blindly’, given there’s been little time to assess their impact. 

-Bank economists are questioning what the RBA has been saying about its longer-term forecasts, with a consensus that before the end of next year we’ll see rates trimmed.

-For now, many Aussie mortgage holders will feel the pinch, with 65% saying they may default as a result of the newly increased rate, as per Aussie Home Loans. 

-Further still, around 30% of homeowners didn’t budget for these rate rises.

-While the average variable home loan rate has jumped to 4.53% in recent months, there are still cheaper home loans available, some under 4%.

At Mozo, we compare many of the best home loans on the market where you can find one at a similarly lower rate.

This might be the time to switch home loans if you’re not happy with your current interest rate and our Home Loan hub is a great place to start your research or try our Home Loan Switch & Save calculator that does the number crunching for you.