RBA raises Cup Day interest rates to 4.35%: What this means for off-the-plan property

The Reserve Bank of Australia (RBA) has announced an interest rate rise of 25 basis points following their Cup Day board meeting today. The cash rate is now 4.35% – the highest since November 2011.

Having held interest rates steady at 4.10% since June this year, RBA Governor Michele Bullock, following the hike announcement, stated that “Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.

“The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.”

This cash rate rise is attributed to many economic factors, including housing affordability, retail spending, wage growth and employment, and household savings.

For homeowners and property buyers, the rise in interest rates, having steadily hiked since May 2022, has meant increased mortgage interest. As a result, the average borrower with a 25-year $500,000 loan at the start of the hikes could soon be paying approximately $1,210 more monthly on their mortgage. This is a 52% increase on what is typically a borrower’s biggest monthly expense.

Governor Bullock recognises the effects of these interest rate hikes in people’s lives, saying in her statement, “Returning inflation to target within a reasonable timeframe remains the Board’s priority.

“High inflation makes life difficult for everyone and damages the functioning of the economy.

“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality.

“To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”

Since May 2022, the RBA has increased interest rates by four percentage points. The Board warns that further tightening of monetary policy may be required.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” Governor Bullock explained.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.

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

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