RBA announces August interest rate rise to 1.85%: What this means for off-the-plan property

The Reserve Bank of Australia (RBA) has announced yet another increase in interest rates by 50 basis points. After today’s decision, interest rates are now at 1.85%.

This cash rate hike is widely attributed to low unemployment and high inflation, with inflation in Australia at its highest since the early 1990s.

It is expected that inflation will peak come late 2022, then decline afterwards. Thus, some of Australia’s biggest banks predict a continual rise in interest rates over the remainder of 2022.

RBA governor Philip Lowe has foreshadowed further interest rate increases to come.

“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy,” Dr Lowe explained.

“The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

For home owners and property buyers, this increase in interest rates means increased interest on mortgages. For example, an owner-occupier with 25 years to go on a $500,000 variable rate mortgage will receive an approximate additional $140 to their monthly repayments after the 50 basis-point increase.

“Higher inflation and higher interest rates are putting pressure on household budgets,” Dr Lowe said. “Consumer confidence has also fallen and housing prices are declining in some markets after the large increases in recent years.

“The Board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.”

With that being said, Dr Lowe expects the Australian economy to grow strongly this year.

“Employment is growing strongly, consumer spending has been resilient, and an upswing in business investment is underway,” Dr Lowe explains.

“National income is also being boosted by a rise in the terms of trade, which are at a record high. The Bank's central forecast is for GDP growth of 3¼ per cent over 2022 and 1¾ per cent in each of the following two years.”

Though this announcement marks the RBA’s fourth consecutive monthly decision to raise the cash rate, it is expected to moderate in due time. The RBA aims to take further steps to normalise monetary conditions in Australia, with today’s increase in interest rates being one step to doing so.

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