The Reserve Bank of Australia has lifted the official cash rate for the sixth consecutive month, as it perseveres with fighting inflation.
In an unexpected move by many economists, at its meeting on Tuesday, the RBA board decided to increase the official cash rate by 25-basis points from 2.35% to 2.60%, and the interest rate on exchange settlement balances to 2.50%.
This is the sixth rate increase in 2022 – but only the second 25-basis point rise. The RBA has consistently pushed up the wholesale cash rate from a record low 0.10%, to sit at 2.60% following its October 4 board meeting.
RBA governor Philip Lowe said the Board remained committed to returning inflation back towards the 2% to 3% target range over time.
Acknowledging that the official cash rate had increased “substantially in a short period of time”, Lowe said the Board had decided on a 25-basis point increase in October, as it continued to assess the inflation outlook and economic growth in Australia.
“Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy. This is necessary to bring inflation back down,” Lowe said in Tuesday’s statement.
Read more: Reserve Bank makes big rate call
Australian Broker spoke to two mortgage brokers about the impact of the RBA’s latest increase to the cash rate.
Sunshine Coast mortgage broker Gordon MacVicar (pictured above left), who runs the Mortgage Choice Peregian Beach brokerage said client communication was paramount following Tuesday’s cash rate increase.
“Both client communication and education are so important in a rising rate environment,” MacVicar said.
“Refinancing is occurring more and more. On average, we are saving our clients 0.6% on their standard variable home loan by refinancing, which cancels out at least one of the recent rate rises.”
MacVicar said Tuesday’s cash rate hike provided opportunities and challenges to mortgage holders.
“I think we will see some strong buying opportunities in the months to come,” he said.
“Although the challenge is, the current assessment rate will make it harder to help clients. I see us moving into an environment where we will have mortgage prisoners.”
MacVicar said mortgage brokers need to be at the forefront of their clients’ minds, as well as those considering making a property transaction.
“Here on the Sunshine Coast, we are still seeing high-priced properties selling in a reasonable amount of time and for good money,” he said.
“Although the buyers from Sydney and Melbourne have left the market and the premium price they were paying has now disappeared.”
MacVicar said this rate hike would tighten mortgage holder budgets across the country.
“Another rate rise will mean there will be less cashflow in homes and it will hurt consumer spending.
I think a lot of people will be dining out in restaurants less, cutting back on café coffees, spending less on retail, along with making sacrifices to household spending,” he said.
“We are going back to where interest rates were four – five years ago, but the cost-of-living pressures were not like they were today. People are more frivolous with their money these days and they have not had to budget as tightly.”
MacVicar’s advice to mortgage holders was to get your home loan reviewed by a mortgage broker.
“I suggest looking at consolidating any consumer debt because as your mortgage repayments will soon go up, costs such as credit cards and secured loans will increase in time,” he said.
“Prioritise what you need and look at pulling back on things you don’t. We do not have a crystal ball, so we can’t pre-conceptualise what is around the corner.”
Sydney broker Daniel O’Brien (pictured above right), owner of Sydney brokerage PFS Financial Services said he considered Tuesday’s cash rate increase an opportunity.
“I see it as a call to action and a reason to connect with clients,” O’Brien said.
“There are plenty of refinance opportunities which come from rate rises. However, from a client perspective, apart from a better deal, they often need a chat and some reassurance in times like these.”
O’Brien said a sixth consecutive rate rise would mean many calls from distressed clients with many concerns.
“I think todays RBA decision will spike refinance and debt consolidation enquiries and new business,” he said.
“I think it will generally slow housing and car purchase business as well.”
O’Brien said this rate hike would cause more financial pain for mortgage holders.
“This will not be forever though, but we are due for an increase,” he said.
“People forget that rates were never meant to be that low which was part of the COVID-19 survival.”
O’Brien said homeowners could prepare for future cash rate rises by adjusting their spending habits.
“I also recommend refinancing to a better deal and embrace the positives of a rate hike such as better value property buying and investing.”