THE run of record-low interest rates has come to an end with the RBA increasing the cash rate by 25 basis points to 0.35 per cent on Tuesday.
Australia’s surging cost of living and inflation numbers contributed to the increase – the first in almost 12 years.
The RBA has increased the cash rate by 25 basis points to 0.35 per cent on Tuesday.
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The RBA’s cash rate hasn’t been lifted since November, 2010 when it was bumped from 4.5 per cent to 4.75 per cent. Since then it has been cut 18 times.
“The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic,” RBA Governor Philip Lowe said in a statement.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected.
“There is also evidence that wages growth is picking up.
“Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”
The RBA has increased interest rates for the first time in 12 years.
Leading economists say Tuesday’s announcement signals the start of a series of interest rate rises before the end of 2022.
“This will weigh on housing price growth, which has clearly slowed in anticipation of these higher borrowing costs,” PropTrack economist Paul Ryan said.
“The outlook for housing prices later in the year is one of a balance between higher mortgage rates and the higher income growth the RBA is looking to see before raising rates.
“Later this week the RBA will update their forecasts for economic growth and inflation in light of this policy change and recent inflationary pressures.”
Homeowners can expect a series of interest rate rises before the end of 2022.
For homeowners with an average loan of $600,000, the rate rise could mean an additional $1,500 per year in interest charges compared to before the rate rise.
Sarah Megginson, senior editor of money at Finder, said the rate rise was likely to lead to further hikes in home loans.
“This rate rise, along with a property market that is beginning to cool, means some recent buyers may be caught out now – or when their fixed rate ends,” Ms Megginson said.
“If your rate has jumped or looks like it is going to, it might be time to go home loan shopping and find a better interest rate.”
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Anneke Thompson, chief economist at CreditorWatch said there was plenty of work to be done to get inflation under control.
“Most developed economies were flooded with cash during the pandemic, which alleviated short term economic pain and certainly kept workers who were unable to work financially afloat, however, the cash is now showing up as higher prices across the board as the world normalises again,” she said.
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