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When will we see the end to the interest rate rise?

Learn more about when experts anticipate that the official RBA interest rate will stop increasing and how you can stay ahead of rising living costs.

The interest rate rise has been a topic of widespread discussion since the Reserve Bank of Australia (RBA) lift their cash rate target in May. In the 16 months leading to May, the RBA maintained the cash rate at 10 basis points, before lifting it to 0.35%.

As of last week, the official RBA interest rate rose to 1.85%. With no sign that the cash rate will slow down anytime soon, many Australians are feeling the effect of rising living costs.

This leads to once big question; when is the official RBA interest rate going to slow down?

In short, it probably won’t happen this year.

Australian economists have been placing bets on when the official cash rate target will slow down. The big four banks believe that official RBA interest rate will see signs of improvement by mid-to-end next year. Though, they anticipate it’ll peak before then.

The big four banks anticipate a further official interest rate rise

Australia’s four biggest banks have revealed their projections on when the cash rate will peak. CBA holds the most modest prediction. They believe that the cash rate will reach its high of 2.60% by November this year. Also, by November this year, NAB believe it’ll peak to 2.85%.

With the moderate projections out of the way, it only leaves space for the highest lender forecasts. ANZ believe the cash increase to 3.35% by November 2022. Westpac also believe it will reach 3.35%, though not until February 2023.

What's causing the interest rate rise?
What's causing the interest rate rise?

What’s influencing the interest rate increase?

Ultimately, it comes down to one major factor. Inflation.

Australia’s inflation rate is at its highest level since the early 1990’s. In the June quarter, inflation peaked at 6.1 per cent. This is more than three points higher than the 2-3 per cent range target that the RBA sets. In the official RBA statement, Governor Philip Lowe stated, “the Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.”

In other words, inflation will get worse before it gets better.

As per monetary policy, interest rates are influenced by the rate of inflation. Hence, Governor Lowe highlighted the reasoning behind the RBA interest rate rise, stating, “the increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy.”

How will this affect home loan rates?

Home loan rates have already started to increase and will continue to throughout 2022 and much of 2023. This is natural in the cycle of monetary policy. Many of the big banks have already passed up further interest rate rises to fixed home loan rates. The same is being seen with variable mortgage products.

Unless you fixed your home loan prior to the rate rise earlier this year, you can expect to see further increases to your mortgage repayments.

The below chart demonstrates what the average mortgage holder with a variable home loan product could be paying in additional repayments, per month, if their rate were to increase to the expected average of 5.27%.

What can you do about interest rate increases and staying ahead of inflation?

There was no doubt that these rate rises were bound to happen. Although, they came a little earlier than the RBA first anticipated. Though, if you haven’t already acted, there are numerous strategies that you can implement to put yourself in the best position, financially.

Refinance your home loan rate

Consult a mortgage professional such as a finance broker to refinance your home loan rate. If you’re not already fixed or haven’t reviewed your home loan in more than two years, it’s important to consult a mortgage professional, now. There are still some banks who’re offering competitive rates.

Act now before they rise further!

Be savvy with your tax refunds

If you haven’t yet spent your tax return, it may be worthwhile putting it into an offset facility (if you have one). Otherwise, save it in an emergency fund. You can learn more about this strategy by clicking here to view one of our recent articles.

Re-evaluate your budget

This is important to do every six months. Priorities change, and so do living costs.

Diversify your income

If you’re able to earn extra income, do so! If you’re looking to diversify your income through real estate investments, we’re here to help. Property investment is our area of expertise.

For more information

To learn more about how we can help you to refinance your home loan or invest in property we would love to help! Click the buttons below to book an appointment with our team, today!

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