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Finance News

RBA reveals June cash rate decision

Amid much speculation, the Reserve Bank of Australia has handed down its last cash rate for the 2021/22 Financial Year.

During its monthly board meeting on Tuesday, 7 June, the bank, led by governor Philip Lowe, has aggressively moved to lift the cash rate from its current rate of 0.35 per cent to 0.85 per cent.

It’s a 0.50 per cent lift from the target only introduced last month, and continues to set the tone for a higher rate environment, off the back of record high inflation and low wage growth across the first quarter of 2022.

RateCIty research director Sally Tindall had previously considered today’s hike “a near certainty”.

She acknowledged that central banks across the world are struggling to get on top of inflation, “and the Reserve Bank of Australia does not want to be one of them”.

Adding that the Board would “want to nip this in the bud”, she shared that the RBA “is likely to take a rapid-fire approach to rate hikes over the next six to 12 months”.

Taking a closer look at its impact on the property market, PropTrack economist Paul Ryan has noted that higher interest rate expectations have already weighed on housing price growth across the country.

“Housing price growth has slowed significantly, with annual price growth falling from 24 per cent six months ago to only 14 per cent in the year to May,” he outlined, with this slowdown having particularly affected the most expensive capital markets of SydneyMelbourne and the ACT.

He expects that even with such a marked impact already being felt in the property space, more interest rate increases will occur over the course of 2022, “but just how high interest rates will be at the end of the year is a key source of uncertainty for the housing market”.

Mr Ryan contended that while financial markets have priced in a cash rate two-percentage points higher at the end of the year, which would raise mortgage repayments by another 24 per cent, it differs to the opinion held by Australia’s major bank forecasters, who “do not view it likely the RBA will increase rates this quickly, predicting rate rises closer to half that much”.

The managing director of the Finance Brokers Association of Australia (FBAA), Peter White AM, has also acknowledged the likelihood that more cash rate increases are on the near horizon, despite the uncertainty as to how high the target could go.  

“We hope for the sake of borrowers that we see more smaller increases over the coming months rather than larger hikes, as this will allow people to prepare and budget,” he shared.

According to Mr White, with rates likely to go higher than had been predicted for much of the last two years, it presents “a great danger to many Australian households”.

“While understanding the need to slow the economy through lifting rates, we must also recognise that if rates rise more than first expected, the social impact could be devastating.”

According to the managing director, “last month’s increase added around $100 on to the monthly repayments of many people”.

He expects today’s increase to add another $100 to $150.

“If this continues month after month many people will find themselves unable to meet their repayments.”

This article was originally published on Smart Property Investment.

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