Residents in the Dandenong Ranges and Yarra Valley may soon feel the pinch with the Reserve Bank of Australia announcing an increase in interest rates.
At a meeting on 7 June, the RBA board decided to increase the cash rate target by 50 basis points.
RBA Governor Philip Lowe said in an online statement inflation in Australia has increased significantly.
“Today’s increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic,” he said.
“The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.
“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today.”
The cash rate is the interest rate on unsecured overnight loans between banks. It serves as the benchmark rate for mortgages, savings accounts and exchange rates.
The Australian economy grew by 0.8 per cent in the first quarter of 2022 and 3.3 per cent over the last year.
Employment has also grown significantly, with an unemployment rate of 3.9 per cent representing the lowest in almost 50 years.
Head of Consumer Research at Finder Graham Cooke said the cash rate hike could cost homeowners almost $2,000 over a year.
“The average homeowner will see their monthly repayments jump by $159, equivalent to $1,907 per year from this increase alone, with more to come,” he said.
“The past few years have seen a huge number of buyers flood into the market, with rock-bottom interest rates. Those days are certainly over.”
The cash rate is expected to be raised further throughout the year and 2023.
Mr Lowe said the board would be paying close attention to the global and domestic outlook when making a decision on raising or lowering the rate.
“While inflation is lower than in most other advanced economies, it is higher than earlier expected. Global factors, including Covid-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation,” he said.
“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.”
