RBA delivers first rate hike since 2010

In a decision that will no doubt make some borrowers uneasy, the Reserve Bank of Australia has lifted the official cash rate by 25 basis points to 1.75%.

October 02, 2018

In a decision that will no doubt make some borrowers uneasy, the Reserve Bank of Australia has lifted the official cash rate by 25 basis points to 1.75%.

“The RBA’s decision to raise the official cash rate is not surprising but the move was not anticipated until at least next year,” said Mortgage Choice Chief Executive Officer Susan Mitchell.

“In recent months, there have been several signs to suggest an increase in the official cash rate was on the horizon but this was expected late next year, following further economic growth and inflation returning to the RBA’s target levels,” she said.

“The RBA board’s decision has come amid good performance in the Australian economy, a favourable unemployment rate, solid business conditions, and home loan demand remaining stable. Tighter credit standards have also been helpful in containing the build-up of risk on household balance sheets.

“The US Federal Reserve has made the decision to lift the target range again in September to between 2% and 2.25%, the third rate rise this year and the first time the benchmark has been above 2% since 2008. The Fed’s decision to continue to raise rate could have implications on the Australian economy such as export and trade, the value of the Australian dollar and perhaps the most notable from a housing perspective, an increase in wholesale funding costs.

“When you consider those factors, it should not come as a surprise why the Reserve Bank of Australia chose to deliver its first rate increase since November 2010.”

Looking ahead, Ms Mitchell said the current economic data could actually encourage the Reserve Bank of Australia to deliver more than one rate increase this year.

“According to the latest Labour Force data from the Australian Bureau of Statistics (ABS), the unemployment rate is sitting at 5.3%, which is notionally full-employment,” she said.

“In addition, business activity continues to perform strongly. The most recent Business Survey from the National Australia Bank found that business conditions remain well above average however confidence fell to below average levels in August.

“Furthermore, home loan demand remains strong by long term standards, with the Australian Bureau of Statistics showing that more than 52,000 home loans were approved throughout July 2018.

Ms Mitchell said it now remains to be seen which of Australia’s lenders will be the first to pass on today’s rate increase, and by how much.

“Three of the nation’s four major lenders recently announced rate hikes on their suite of variable home loan products, and today’s rate increase will no doubt encourage Australia’s lenders to pass on today’s rate increase to borrowers,” she said.

“For this reason, it is critical that prospective buyers and borrowers alike ensure they are in a healthy financial position to ensure improve their chances of securing a competitive deal on their home loan. Further, I would encourage anyone looking to apply for their first loan, to speak to a qualified mortgage professional who can guide them through the complex lending environment.

“With all the change and volatility we are seeing in the market, I suggest that anyone who has been in the same home loan product for a while to speak to their local mortgage broker and ensure they’ve got the best deal and one that suits their financial situation today, and over the long term,” Ms Mitchell concluded.

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