As predicted, the Reserve Bank of Australia has once again lifted interest rates by another 0.5%. They plan to keep on doing this until we all learn that money is not a right, it’s a privilege.
The new rate will be 1.35%, up from the previous 0.85% which was increased only last month.
The rapidly rising rate of inflation, which stayed flat during the pandemic, is the sharpest increase Australia has seen in three decades.
Philip Lowe, governor of the RBA, said that he’s going to keep pushing that interest rate hike button until you’re all basically out of money, so if we could all rein it in on the luxury yacht and third home purchases, that would be great.
“Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic,” Lowe said.
“The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.”
How Rising Interest Rates Will Impact You
Well, things aren’t going to get easier, for starters. The comparison site Finder has said that homeowners on variable rate mortgages will likely end up paying hundreds of dollars extra each month in interest because of the hike.
Graham Cooke, head of consumer research at Finder, said that the combined cash rate hikes will cost the average Aussie homeowner over $5,000 over the course of a year.
“These are tough news for many homeowners, with 1 in 4 already struggling to meet their monthly mortgage payments in June,” he said.
“There’s no light at the end of the tunnel just yet, with our panel forecasting at least two more rate rises to come. This will put further downward pressure on a rapidly deflating housing market.”
Those on a fixed-rate mortgage won’t be impacted by the RBA’s decision, however, Cooke advises that fixed-rate mortgage owners should check now to see when and how monthly payments are likely to increase.
“Your fixed home loan could be a ticking time bomb if you aren’t prepared,” Cooke said.
Related: Fixed Term vs Variable Mortgages: What’s Better Now That Interest Rates Have Gone Up?
Related: The Reserve Bank Has Raised Interest Rates – Here’s Why That Matters
How Long Will Interest Rate Rises Go On For?
Lowe and the RBA are trying to limit the effects of inflation which is the process of increasing prices on everyday items due to an increase in demand for them and a limited supply. The theory here is that by raising interest rates, making it harder to access capital, we’ll all spend less, driving down demand and reducing inflation, returning goods, services, and lettuce to normal, sustainable levels.
Inflation in Australia is, however, not entirely something we can control. As participants in a global market, we’re fairly susceptible to international pressures and shocks like the war in Ukraine, shipping and supply disruptions, as well as looming economic uncertainty in the US and Europe.
Once all that goes away, we’ll stop being hit by interest rate hikes. So, we’re probably looking at at least a year of turmoil yet to come. Cool.
Inflation, currently at 5.1% year-on-year, is still rising and expected to peak at around 7%, according to the RBA as well as other economic experts. To counter that, it’s suspected that the RBA will raise the interest rate to 2.5%, however, some are suggesting that it could go as high as 3.5% over the next year or so.
The RBA has already stated that they are planning another 0.5% increase next month. Finder suggests that interest rates could peak at the start of 2023, however, there is significant uncertainty around this and it depends on how the economy responds over the coming months.
Although the rate rises seem extreme, interest is not as high as in other major economies like the US and the UK. Australia, for now, seems to at least be in a much better position to deal with the global shocks than others.
For a better understanding of how interest rates work, check out the below:
- Interest Rates Have Gone Up Again — Here’s How It Will Impact You
- Why Property Seekers Shouldn’t Necessarily Be Put Off By Hiked Interest Rates
- All of Your Recession Questions, Answered
- What the Rising Inflation Rate Means for You — and What’s Going to Be Done About It
- We’ve Got Some Hard Numbers on How Much Your Bills Are Set to Go Up By
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