Cash Rate Decision May 2023: RBA Increases Cash Rate To 3.85%

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Otto Dargan

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The Reserve Bank of Australia (RBA) has increased the cash rate to 3.85%.

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?

Even though inflation seems to have passed its peak, at 7% it is still too high, and it will take some time before it gets back to the target range. As a return to target inflation is important, the RBA said the increase in the cash rate was warranted. Governor Dr Philip Lowe further explained, “The Board is still seeking to keep the economy on an even keel as inflation returns to the 2–3 per cent target range, but the path to achieving a soft landing remains a narrow one. The central forecast is for the economy to continue growing, albeit at a below-trend pace; GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025. Given the expected below-trend growth in the economy, the unemployment rate is forecast to increase gradually, to be around 4.5% in mid-2025.” Home Loan Experts CEO Alan Hemmings said, “After a month’s reprieve, the Reserve Bank has again lifted the cash rate by 0.25 percentage points. The cash rate now sits at 3.85%. This was not an unexpected result, given inflation in Australia remains high.”

How High Will The Cash Rate Increase?

Hemmings explained that most economists believe we are nearing the end of the increases; some believe the top of the cycle will be a cash rate of 3.85% – the current figure. “We have already started to see lenders review fixed rates, with some reducing them for longer fixed terms. This is normally an indication that the increase cycle is coming to an end. “But even if we are near the end of the cycle, there are still many customers who are yet to experience an increase in repayments because they locked in a fixed rate two years ago. These customers will start converting to variable rates over the coming months and should review the interest rate to which their lender will be moving them. There may be an opportunity to refinance and obtain a cheaper rate and also receive a rebate from the new lender. Most larger banks have advertised interest rates at about 5.6%, but there are cheaper rates available in the market.”

About the Author

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Otto Dargan

Otto Dargan is the Founder of Home Loan Experts. He is involved in strategic and operational matters. He utilises his time in seeking... [Read More]

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