Loans are getting more expensive – Vesti online


Reserve Bank of Australia in Sydney

The State Reserve Bank (RBA), as predicted by some experts, while others hoped that it would not come to that, raised the official cash interest rate for the eighth time in a row.

On Tuesday, at the last meeting for 2022, the RBA raised the cash rate by 25 basis points to 3.1 percent (the highest level since the end of 2012).

“Inflation in Australia is extremely high, 6.9 percent from the beginning of the year to October. Global factors explain much of the high inflation, but strong domestic demand relative to the economy’s ability to meet that demand also plays a role. Returning inflation to the target requires a more sustainable balance between supply and demand,” said RBA Governor Philip Lowe in a statement.

Australia’s inflation rate is expected to peak at eight percent in the current quarter, and is already at levels not seen since 1990.

The Central Bank’s preferred indicator was the increase in prices, which amounted to 6.1 percent in the July-September period, which is far from the RBA’s inflation target, which should be in the range of two to three percent.

Excessive government spending during the pandemic, combined with rising energy prices after the Russian invasion of Ukraine, caused inflation to rise in many countries.

Low indicated that the RBA’s cash rate will rise further, depending on the state of the global economy, household spending and what happens to wages and prices.

– The size and timing of future interest rate increases will continue to be determined based on incoming data and the RBA Board’s assessment of the outlook for inflation and the labor market. The board remains determined to return inflation to the target amount and will do everything necessary to achieve this – the governor emphasized.

Treasurer Jim Chalmers said the full impact of the interest rate hike was clearly being felt.

– In addition, severe weather events and natural disasters significantly affect our economy and budget – said Chalmers, recalling the devastating floods that hit the southeast of the country in recent months.

On the one hand, the Commonwealth Bank, as the largest provider of mortgage loans in Australia, expects the RBA’s cash rate to reach 3.35 percent, and that the RBA will reduce the interest rate by half a point by the end of 2023.

However, ANZ Bank’s head of Australian economics, David Plank, said his bank expected three more interest rate hikes, with the highest level at 3.85 percent by May next year.

– The low annual interest rate of 2.41 percent for new variable housing loans that we had in April can now reach 5.08 percent, assuming that the November and December RBA rates are fully passed on to borrowers – Eliza Owen pointed out , Head of Research at CoreLogic Australia.

In addition, as Owen emphasized, fixed-rate loans will have to be refinanced. In three years, instead of the former 1.95 percent, the interest rate will jump to more than five percent.

Companies are also exposed to higher borrowing costs.

– The rise in interest rates is not a surprise, but it will increase the pressure on business and household budgets at a critical time of the year – said Gavan Ord, senior manager at CPA Australia.

Among 1,200 people surveyed by CPA this month, more than a fifth cited rising interest rates as their number one concern for the new year.

Even those without credit could be exposed to higher costs, as tenants have been warned to expect rent increases.

“Many landlords are passing on rate increases to renters,” said Mark Degotardi, CEO of the Community Housing Industry Association of NSW.

The RBA Governing Board will take a break during January, and the next meeting is scheduled for February 7, 2023.

Growth of monthly installments

Monetary policy has not been tightened this quickly in Australia since the second half of 1994, when the RBA raised the cash rate by 275 basis points over five meetings.

Each quarter-point increase adds about $75 to monthly payments for every $500,000 borrowed, RateCiti said.

A 300 basis point increase from May would increase monthly payments by $834 for such a mortgage.

Affected real estate market

Few sectors of the economy are as sensitive to interest rates as the real estate market, and the effect of the increase until last month was already apparent, Eliza Owen said.

– From May to October of this year, the monthly value of secured finances fell by 17.9 percent. The annual volume of sales is 13.3 percent lower compared to this period last year – said Owen.

Source: Vesti online by

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