RBA goes back on inflation attack with rate hike

Borrower demand still strong despite 'nervous calls'

RBA goes back on inflation attack with rate hike



The Reserve Bank of Australia has put further pressure on mortgage borrowers with a decision today to press ahead and raise the official cash rate by an additional 25 basis points to 3.85%.

The RBA had previously delighted borrowers with a decision to keep rates on hold at its April meeting, giving them a short reprieve after 10 consecutive increases in interest rates since May 2022.

However,  with annual price inflation still outside of the RBA’s 2% to 3% target band, given CPI hit 7% in the March quarter, the Reserve Bank decided it needed to hike rates further.

Announcing the decision, RBA Governor Philip Lowe said inflation in Australia had passed its peak, but at 7% was still too high and it would be some time yet before it was back in the target range.

“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today,” Lowe said.

Mortgage broker Chris Bates (pictured above left) of brokerage Blusk, previously known as Wealthful, said today’s decision could slow demand among some waiting for the end of rate rises, but would not stop the majority of buyers transacting.

Bates said current buyers in the market already had expectations that interest rates rises were nearing their peak, and it was unlikely they would be put off by the RBA’s decision to increase rates today.

“The consumer perception is interest rates are not likely to go up much over 4%,” Bates said. “They are seeing inflation beginning to get under control, and this decision will not shift that perception. They know that this might well be the last one, and 25 basis points will not stop them buying.”

“We have already seen demand begin to come back into the market from December and January from buyers who don’t want to sit around and wait for the bottom of the market.

“If the RBA were about to put rates up three or four times, that would show the market back down again – but that is not the terminology being used now, and this doesn’t seem likely.”

Bates said the increase might stop some sellers from selling, but would not cause prices to go down.

“Less sellers entering the market means less supply, while demand is still strong. That means prices will keep going up. There’s just not enough properties, and that’s what’s forcing prices up.”

Resolve Finance broker Niti Bhargava (pictured above right) said today’s RBA decision would not affect brokers too much, as there were a range of factors in a customer’s circumstances beyond just the headline interest rate.

Bhargava said that while “people are nervous” and were making “nervous calls” to her business, this was an opportunity for brokers to position themselves to provide borrowers with the knowledge they need.

“As brokers we need to help borrowers make sense of the market, and I can’t stress enough the importance of the education piece in the market right now for both brokers and borrowers,” she said.

“We have seen constant change in interest rates, and whether rates are going up or down, we need to help decrease the complexity of the mortgage market and position ourselves as trusted advisers.”

Australian housing values recorded a second consecutive increase last month, with CoreLogic’s national Home Value Index lifting 0.5% in April on the back of a 0.6% lift in March.

CoreLogic’s research director Tim Lawless said that it was becoming increasingly clear that the housing market has moved through an inflection point.

Do you think the RBA made the right decision to raise interest rates in May? your thoughts or stories on this topic in the comments section below.

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