Residz Team 2 min read
Australia’s Reserve Bank has lifted the official interest rates for the first time in 11 years. In an early move to ‘withdraw some of the monetary support’ that helped Australia’s economy during the pandemic, the RBA has lifted the cash rate target by 25 basis points or 0.25%. At least two banks, ANZ and CommBank, have said they will pass on the rise to borrowers.
Reserve Bank governor Philip Lowe says record low interest rates were no longer needed, thanks to the resilience of the Australian economy and the adaptability of Aussies. However he said ‘considerable uncertainties’ existed, and the RBA would ‘watch closely’ the high levels of household debt and householders’ lack of experience with rising interest rates.
The RBA says it’s the right time for the ‘normalisation of interest rates.’
“The combination of fiscal and monetary support has worked and the development of vaccines in record time has allowed our society to return to more normal functioning earlier than was thought possible,” Mr Lowe said in his announcement.
As well, he pointed to unemployment coming down quickly.
“The unemployment rate now stands at 4 per cent. It is expected to decline further to around 3½ per cent over the course of this year, which would be the lowest level in nearly 50 years,” he said when announcing the rate rise.
By contrast, inflation was higher than the country had experienced for many years and “higher than we were expecting,” he said. Stronger upward pressure on labour costs was also likely to continue.
“We expect to see this in the ABS data in the period ahead. In a tight labour market, some firms are paying higher wages to attract and retain staff,” he said.
Borrowers will be paying more for their mortgages as a result of the announcement. ANZ and Commonwealth Bank both say they will pass onto customers the 0.25 percent rise to variable home loan interest rates around mid-May. The RBA Governor Philip Lowe says he expects that further increases in interest rates will be necessary over the months ahead.
There are a number of views on how all this will play out in the real estate market with many other influential factors in a state of change. Not the least of those is the re-commencement of inbound migration, the continuing shift to lower-cost regions, and the formation of our next Federal Government. There seems to be a consensus on one thing, the rapid price escalation of 2021 will not continue in 2022. Only time will tell if the pundits are wrong again as they were in 2020 predicting price falls when COVID took hold.
Image: ‘Recession Hits’ 2009 by Alex Proimos from Sydney, Australia