6 minute Read
6 minute Read
The Reserve Bank of Australia’s highest single-raise cash rate in 22 years leaves everyone thinking, ‘How can I handle this?’
In a statement made by RBA governor, Philip Lowe, the Board decided to increase the interest rate by 50 basis points leading to the cash rate of 0.85%. So, where does this leave you? Here’s what you need to know.
A significant rise in inflation pushes the RBA to increase interest rates. On the other hand, low inflation might lead to lower interest rates.
The inflation rate is the measurement of changes in the level of prices. An increase in inflation indicates that the level of prices increases but the purchasing power of money decreases.
Then, the cash rate is the interest rate for overnight loans between banks. An upward movement in the cash rate means that the cost of borrowing money becomes expensive.
Therefore, a higher inflation rate leads to a higher cash rate to help the economy slow down and restabilise.
This prominent increase is associated with high inflation rates from COVID-19, the war in Ukraine, the labour market, and recent floods.
As stated by Lowe, ‘Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices. The floods earlier this year have also affected some prices.’
With the 5.1% inflation rate, many Australian families were pushed to the brink because of the surge in prices. This leads to more financial pain from paying high costs of food, electricity, gas, and other commodities.
‘Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago… Today’s increase in interest rates will assist with the return of inflation to target over time,’ Lowe pointed out.
This suggests that you should brace yourself for the continuous increase in the prices of goods and services that will lead to higher rates.
You don’t need to panic. While the hikes in inflation and interest rates might be challenging and overwhelming for some people, there are still ways to manage the current situation. We narrowed down three tips to help you make the most of the increase in interest rates:
Are you tired of renting a place? Are you planning to finally purchase your first home? If you answer ‘yes’ to these questions, this can be the perfect opportunity for you to enter the property market.
The increase in interest rates decreases the borrowing capacity of professional investors. In turn, home prices will fluctuate, favour first-home buyers, and give them a chance.
PropTrack Home Price Index indicated that property prices in some of Australia’s cities declined from 24% to 14% in May 2022. For instance, Sydney recorded a -0.29% decline, Melbourne with -0.27%, and ACT with -0.12%.
According to Joseph Daoud, Chief Executive Officer of It’s Simple Finance, ‘This allows first home buyers to be able to enter the market at a lower price point.’
Reviewing your loans is always a good idea, but you should consider doing it sooner than later. If you have loans, check whether they are fixed or variable rate.
Everyone’s financial standing is on a case-to-case basis. When refinancing, it is best to consult with financial experts to help you further assess your loans and make smarter adjustments based on your situation and goals.
If you are looking into investing, it is highly important to assess the banks that best suit your needs before making decisions.
Term deposits usually lead to higher returns when the interest rate increases. For example, Westpac introduces a 2.25% per annum term deposit rate for 12 months effective 9 June while ANZ will offer a 2.25% term deposit rate for 11 months effective 13 June. NAB will also follow along with a term deposit rate of 2.25% on 17 June.
Daoud also recommends to ‘approach a bank that will take the highest amount of negative gearing as these banks will service you best and allow for the maximum borrowing capacity.’
“Inflation is expected to increase further, but then decline back towards the 2–3 per cent range next year,” said Lowe. With these expectations around the corner, it’s important to make smart decisions that will help you survive the surging inflation and interest rates.
If you want to know more about how you can better manage your finance amidst the interest rate hikes, you can use our calculators to assess your borrowing power, loan repayments, and stamp duty. Also, our lending specialists are always available to help make things simple for you.
Considering the recent interest rate hikes, more than ever, it’s important to consider all options to avoid paying more on your mortgage. Following the RBA’s 50-basis-point hike in the cash rate on 7 June 2022, it is no surprise that many banks increased their rates as well. Australia’s big four already announced that they would […]
5 minute Read
The Reserve Bank of Australia’s highest single-raise cash rate in 22 years leaves everyone thinking, ‘How can I handle this?’ In a statement made by RBA governor, Philip Lowe, the Board decided to increase the interest rate by 50 basis points leading to the cash rate of 0.85%. So, where does this leave you? Here’s […]
6 minute Read
Prime Minister Scott Morrison has just recently declared that the government’s Home Guarantee Scheme will have higher maximum property prices and more available places per year. From July 1, this price upgrade will qualify houses in two out of five (40%) suburbs nationwide for the scheme. This is up from 24.1% according to analysis by […]
3 minute Read