Reserve Bank decides on interest rates

The Reserve Bank of Australia has lifted the official cash rate for the seventh consecutive month, as it perseveres with its fight to bring down inflation.

At its meeting on Tuesday, the RBA board decided to increase the official cash rate by 25-basis points from 2.60% to 2.85% and the interest rate on exchange settlement balances to 2.75%.

This is the seventh consecutive rate increase in 2022 as the RBA has consistently pushed up the OCR from a record low 0.10% in April to sit at 2.85% following its November 1 board meeting.

On October 26, annual inflation rose 1.8 % to sit at 7.3% – a big increase from what experts had predicted. The annual CPI jump is the biggest for three decades, where the last time it was this high was in 1990 when it hit 7.7%.

RBA governor Philip Lowe said as was the case in most countries, inflation in Australia is too high.

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand,” Lowe said.

Finsure CEO Simon Bednar (pictured above left) said after seven successive cash rate increases, the RBA could play Santa Claus and spare mortgage holders another hike in official interest rates when it meets in December for the final time this year.

“While the RBA has responded to rising inflation by lifting the cash rate from record lows since May this year, I expect the central bank to take a breather over the Christmas break despite the latest data showing the consumer price index has risen 7.3% in the past year,” Bednar said.

“I don’t believe the RBA will do anything in December with Christmas looming. There is also no RBA board meeting in January so mortgage holders may be given a two-month respite from rate increases.”

Bednar said with inflation continuing to surge around the world, the RBA might have to increase rates again in February 2023.

“The only conjecture around the RBA increasing the cash rate in November was around by how much after it hiked by 25 basis points in October,” he said.

“At this point we still don’t look like matching the 75-basis point rises by the US Federal Reserve. Australia is not faced with the same inflationary pressures as the US or Britain, but global economic headwinds caused by the war in Ukraine and natural disasters locally continue to be a factor for the RBA.”

Adele Andrews (pictured above right), director of Melbourne brokerage Australian Property Home Loans, said for brokers rate movements were part of the industry.

“For the first time in a long time, rates are on an upward trajectory and right now a huge part of any broker’s role with their clients is reassurance and education,” Andrews said.

“The role goes more and more beyond ‘getting the finance’ and is relied upon so much more as being a credible expert – someone people can go to for opinions, thoughts and guidance. 

“You can’t be a one trick pony as a broker any more, you need to be well read on economics, property markets and finance overall and having this knowledge will help clients feel that they are dealing with an expert in their field and reassured that they are in good hands.”

Andrews said another interest rate hike came with the territory – housing was considered a necessity and mortgages were a major part of financing those necessities. 

“There will potentially be a bit more caution as people adjust to this new world, but so much of what we do is focusing on education,” she said.

“The market will want to be more informed about their choices. Are they on a good deal, can they restructure their debt, what tips and tricks should they be picking up on, should they look at other features in their home loan structures. Our clients want our help and that’s exactly why we are here to help them.”

Andrews said another reason why homeowners should stay in close contact with their broker was to ensure their broker was doing everything possible to reduce any client stress.

“This might mean going back to basics and looking at discretionary spending, going over a budget via your bank statements, being more in control of what is going where,” she said.

“It doubles down as that imperative need for reassurance of knowing that you are in the best possible structure for you at this moment in time and that is something that only a broker can assist a client with.”

Andrews said her advice to concerned mortgage holders about the latest cash rate hike was to work closely with an experienced broker on potential rate scenarios and work through the numbers. 

“It is important to understand what your non negotiables are and if you seek some locked in reassurance, consider fixing your loan to take the guesswork and any potential anxiety about further increases away,” she said. 

“Be in control of your money because there may just be further increases before the dust settles and being prepared is everything right now. Control what you can because for many there is still plenty of opportunity to build on your wealth too.”x