Interest Rates Update June 2022
June Interest Rates Update
As expected, the Reserve Bank of Australia (RBA) has lifted the official cash rate for the second straight month to address higher than expected inflation while consumer confidence fell amid cost-of-living concerns, although the size of the increase surprised most economists.
RBA governor Philip Lowe announced an increase of 50 basis points to 0.85 per cent following the board’s June meeting on Tuesday afternoon.
Most economists and banks had expected a hike of either 25 or 40 basis points to address inflation, which grew to 5.1 per cent in the 12 months to March.
This is only the second increase in the official interest rate since November 2010, which lifted the cash rate from a record-low 0.1 per cent to 0.35 per cent in May.
The board noted that inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected.
This is attributed to global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation.
But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices. The floods earlier this year have also affected some prices.
This week’s increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.
In the statement, RBA governor noted the resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today.
The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market.
The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.
Current Interest Rates (Big 4)
What it means for homeowners
Mortgage holders should expect their banks to pass on the rate hike in full as they did following May’s rate hike. Those on a variable rate will see their repayments go up in the next couple of weeks.
This is likely to continue in the following months as RBA economists assume the cash rate could reach 1.75 percent by the end of this year and 2.5 percent by the end of 2023.
However, there are also concerns that rapid increases in borrowing costs will squeeze Australia’s heavily indebted households. That in turn would crimp consumption, which accounts for about 60% of economic output.
This risk is a key reason why most economists expect the RBA will conclude its tightening cycle with a cash rate of about 2%. However, that contrasts with money market pricing for a rate of 2.8% by December and 3.6% a year from now.
Some economists point out that the slowing momentum in the housing market will have a negative effect on household wealth and will slow down consumer spending so the RBA may not have to do that many rate rises.
If you are currently on a variable rate or have a fixed rate loan expiring soon, now is the time to have your loan reviewed.
Give Darren a call on 0452 339 778 or email him at [email protected] to discuss what options you have available.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
