reserve-bank-australia-mm_f2sxcx-2

RBA increases interest rates to 4.10%

Market Insights
10 months ago
1 minutes

The Reserve Bank of Australia (RBA) has increased the cash rate target by 25 basis points following their monthly board meeting today. The cash rate is now at 4.10% - a level not seen in over a decade.

In a statement following the decision, RBA Governer Philip Lowe explained, “Inflation in Australia has passed its peak, but at 7% 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.”

As a result of 12 cash rate rises since May last year, the average Australian would need a significantly sizable sum to secure and service a loan for a median-priced house.

According to RateCity, the average borrower with a $500,000 loan before the hikes began in May 2022 could soon be paying a total of $1,134 more a month. This is a 49% increase.

Dr Lowe acknowledges the impacts of these cash rate hikes on housing prices in his statement.

“The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending,” Dr Lowe said. “Housing prices are rising again and some households have substantial savings buffers, although others are experiencing a painful squeeze on their finances.”

Ultimately, the board seeks to return inflation to the targeted 2-3% range, “but the path to achieving a soft landing remains a narrow one.”

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” said Dr Lowe.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

For more news, market insights, and lifestyle, click here.

Header image source.