Residz Team 2 min read
House prices are falling but the interest rates cooling the buyer enthusiasm could keep on rising.
On lifting interest rates, Reserve Bank of Australia governor Philip Lowe has said the RBA will 'do what’s necessary to get inflation back to 2%to 3%.’
Unclear how high interest rates need to go
In an interview with Leigh Sales of ABC TV, Mr Lowe said he believed inflation, currently at a 20-year high of 5.1%, would reach nearly 7% by the end of the year and that means they’d need to chart a course to bring it back down.
“...what we’ve got to do is make sure inflation comes back to 2% to 3%,” he said. “And it’s unclear at the moment how far interest rates will need to go up to get to that.”
His interview comes after the RBA’s July interest rate decision which lifted the cash rate by 50 basis points, taking it to 1.35% in only three months. In early May it announced the first rate rise in 11 years.
Now, Philip Lowe told the ABC it was reasonable that the cash rate gets to 2.5% “at some point,” given it is “a real interest rate of zero” in inflation-adjusted terms.
“I’m confident inflation will come down over time but we’ll have to have higher interest rates to get that outcome and how much higher remains to be determined,” he said.
Impact of the next rate hikes
RateCity has crunched the numbers on how regular rate hikes could impact a 25-year, $500,000 home loan. Using NAB predictions of an average 5.1% interest rate by December 2022 it says monthly repayments would become $620 more expensive in August 2024 compared with April 2022.
The next Reserve Bank Board Meeting on monetary policy decision is 2nd August 2022, and it’s almost certain we can expect another interest rate hike.
Trading Economics says the fact Australia’s unemployment rate fell to 3.5% in June, the lowest in 50 years, raises the odds for “a supersized 75 basis points rate-hike” in August.
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Photo by Sandy Millar on Unsplash