labelCategory: RBA Cash Rate
The Reserve Bank of Australia (RBA) has increased the cash rate to 4.10% for June 2023.
How Does The Cash Rate Affect My Interest Rate?
Lenders add a margin to the official cash rate to determine the variable interest rate they offer to customers. So if you have a variable interest rate, it will almost certainly go up with a cash rate increase.
You can use our repayment calculator to find out what your repayments should look like.
Why Did The RBA Increase The Cash Rate In June 2023?
In his statement on the RBA’s decision, Governor Dr Philip Lowe said, “Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.”
He further explained, “A significant source of uncertainty continues to be the outlook for household consumption. The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. Housing prices are rising again and some households have substantial savings buffers, although others are experiencing a painful squeeze on their finances. There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.”
What Do Our Experts Say About The RBA’s Decision?
Home Loan Experts CEO Alan Hemmings said, “Following worse-than-expected inflation results, the Reserve Bank has again lifted the cash rate by 0.25 percentage points. The cash rate now sits at 4.10%. There was some hope that the Reserve Bank would pause increasing the cash rate, but surprising inflation figures forced the Bank’s hand.”
Hemmings added, “The problem of mortgage prisoners may become more significant, and customers are advised to discuss options with their current lenders first. Consulting a broker who is knowledgeable about available offers and can help maximise borrowing capacity is also recommended.”
Home Loan Experts General Manager, Mortgage Broking, Bhisan Raj KC further added, “This was expected, especially given the increase in the inflation rate that we saw. The federal government gave money to a range of different people and now the Fair Work Commission has increased minimum wage and award rates. This means people will have money to spend. Australia also has plans to bring in more people via migration. This leaves the RBA with little choice – it needed to lift the cash rate to control inflation.”
Navigating The Mortgage Cliff
For many homeowners, the ‘mortgage cliff’, is here. And the financial hit to unprepared homeowners can be severe, especially with the cash rate rising yet again in June.
Hemmings added, “Banks believe most customers will survive the cliff, but things will become tougher. Customers may need to review discretionary spending, such as reducing the frequency of Uber Eats meals. All customers are advised to do so, even though Australians generally fare well.
“Those facing financial difficulty, should be proactive and communicate with their broker or lender. Restructuring the loan, such as moving to an interest-only payment plan, may be an option. However, it is crucial to address the issue before falling into arrears.”