The Reserve Bank of Australia (RBA) has lifted the cash rate 0.25 percentage points to 0.35 per cent.
This is the first time the RBA has lifted interest rates in 12 years, and the first time around 1.1 million Aussie homeowners will have had to deal with a rate rise.
RBA governor Philip Lowe said the central bank determined now was the “right time” to begin withdrawing the monetary policy support it launched during the pandemic.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” Lowe said.
“There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”
What it means for homeowners
Mortgage holders will need to brace for the rate hike to be passed on to them.
Those who locked themselves into a low fixed rate will not need to worry about a hike until their fixed-interest period ends.
Those on a variable rate will need to prepare for higher mortgage repayments.
Most of the major banks are expecting rates to continue climbing.
Westpac is anticipating rates will rise to 2 per cent by May next year.
“The RBA is likely to lift the cash rate multiple times over the next six to 12 months as it works to bring inflation back under control,” RateCity research director Sally Tindall said.
“If the cash rate gets to 2 per cent by May next year, then someone with $500,000 owing on their loan today and 25 years remaining could be looking at a total increase to their monthly repayments of $511.
“That’s going to be a lot for many borrowers to swallow, particularly anyone already struggling to make the monthly budget add up.”
Who will benefit from today's rate rise
A rate rise isn't bad news for everyone. Retirees and savers are set to benefit.
“Savers may finally have something to smile about after two years of earning next to no interest,” Tindall said.
“With inflation surging at the fastest pace in two decades, and savings rates at all-time lows, most people’s hard-earned cash has been going backwards. It’s time to turn this around.”
While there is an expectation banks will start lifting deposit rates, there is no guarantee they will mirror the RBA.
“Banks are full to the brim with cash. This will make it a costly exercise to pass these hikes on in full, but that’s what they should do,” Tindall said.
The latest statistics for March from the Australian Prudential Regulation Authority show Australian households have a total of $1.26 trillion in the bank – an increase of $272.4 billion since COVID.
“The irony is the more money we put in the bank ready for a rainy day, the less likely the banks are to offer competitive rates,” Tindall said.
“If the RBA hikes, find out what your bank intends to do. If your savings rate isn’t increasing, it could be time to move your business elsewhere.”