The Reserve Bank of Australia (RBA) has thrown another curveball at homeowners, implementing a surprise 12th rate hike since May last year. This move is intended to combat the persistently high inflation rates the country has been grappling with1234.
In a move that surprised financial markets and economists, the RBA lifted the cash rate target by 25 basis points to 4.10%. This level is the highest Australia has seen since April 2012, putting the base interest rate at a level many Australians never thought they’d see in the lifespan of their loans1.
For the average Australian, the financial implications of these successive rate hikes are staggering. Today’s rate hike alone means an additional $1,264 in mortgage repayments since the cash rate was at a mere 0.10% in April 2022. For Australians with an average loan size of $577k, they’ll be shelling out over $15k more per year on their mortgages compared to the same time last year. That’s an additional $1,200 every month—a huge amount of extra money to be forking out on mortgages1.
RBA Governor Philip Lowe stated that the rate increase was a necessary step to rein in inflation, which remains uncomfortably high at 7%, despite having passed its peak. Lowe stated that additional tightening of monetary policy may be required to ensure inflation returns to target in a reasonable timeframe1.
However, this decision is expected to put significant financial pressure on homeowners. As Lowe acknowledged, the combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending, and some households are experiencing a painful squeeze on their finances1.
With the possibility of further hikes looming, it’s crucial for homeowners to reassess their financial plans and prepare for potential future shocks. Stay tuned to our blog for more updates on this developing story.