What is the Current Cash Rate?
At the August RBA meeting on the 2/8/2022 the cash rate was once again increased by 0.5%. This follows an increase of 0.25% in May and 0.5% in both June and July. The cash rate is currently 1.85%.
This cash rate is 1.75% higher than the cash rate of 0.1% throughout 2021. However, in historic terms in is still quite low.
What is the Cost?
The increased monthly cost of repaying loans by size is as follows:
$500,000 loan – Will have a monthly increase of $144 and the May-August increase will be $472
$750,000 loan – Will have a monthly increase of $211 and the May-August increase will be $708
$1,000,000 loan – Will have a monthly increase of $281 and the May-August increase will be $944
Outlook on Inflation
Inflation is widely expected to reach 7.75% later in the year. However, the inflation forecast for 2023 is lower. Therefore, many households will be on a tight budget over the next 6-12 as inflation increases to 7.75% at the same time interest rates are increasing.
It is then hoped that the higher interest rates will kick in and slow inflation.
Future Rate Rise Expectations
Westpac and ANZ believe that the cash rate will reach 3.35% around the beginning of 2023. This would imply another 1.5% worth of rate rises. The RBA has stated that the neutral rate is in the region of 2.5%. This leads Westpac to believe that the September rate rise will be 50 basis points (nearing the neutral rate), followed by four rate rises over the following months of 25 basis points.
It is the view of many analysts that the Board will need to slow the economy to a 1% growth rate in order to control inflation. This is well below the average of just over 3% growth Australia usually puts out. In global terms, this growth rate is quite good as countries such as the US have experienced negative quarterly growth.
Ideas
Ideas include:
- Refinance your home loan/ shop around – new customers almost always get lower rates
- Increase your credit score – this will allow you to negotiate lower rates
- Make extra repayments – to lower the amount of interest calculated
- Use offset accounts – to lower the amount of interest calculated
- Take advantage of rising interest rates and shop around for higher interest savings accounts. Many savings accounts are now offering interest rates above 2% and some even above 2.5%. This number will only increase as the cash rate increases.
Source: Westpac