The Reserve Bank of Australia has lifted the official cash rate for the second consecutive month in an effort to tackle high inflation.
At its meeting on Tuesday, the RBA board decided to increase the rate by 50 basis points from 0.35% to 0.85% and the interest rate on exchange settlement balances to 75%.
It is the second time the RBA has lifted the OCR this year. In May, the RBA pushed the rate up by 25 basis points, from 0.1% to 0.35% - the first time the rate had been increased since 2010.
RBA Governor Philip Lowe said inflation in Australia had increased significantly.
“While inflation is lower than in most other advanced economies, it is higher than earlier expected,” Lowe said.
“Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices.
Lowe said the Board would be paying close attention to the global outlook which remained clouded by the war in Ukraine and its effect on the prices for energy and agricultural commodities.
“Real household incomes are under pressure in many economies and financial conditions are tightening, as central banks withdraw monetary policy support in response to broad-based inflation,” he said.
“There are also ongoing uncertainties related to COVID, especially in China.”
Tracy Kearey (pictured above left), managing director of Mortgage Advice Bureau Brisbane said after today’s interest rate rise, it was a good chance for brokers to connect with their clients and reach out to them.
“Offer options of repricing their current loan, discuss debt consolidation and if It will impact on their cash flow/lifestyle to see if they can manage their debt better,” Kearey said.
“We all know client circumstances change and as brokers we need to be on the front foot of that.”
Kearey said brokers should be reassuring their clients.
“We have not seen rate rises in so long, with many of our clients never seeing a rate rise during the lifetime of their loan, so this is a good opportunity as brokers to get in front of our clients,” she said.
“This could also bring in more business. Look at retention by making sure clients are happy with their current lender, it’s also an opportunity to consider refinancing. As brokers, we are in the driver’s seat of a client’s financial situation.”
Kearey said as almost of 70% of loans were written by brokers, Australians understood the service the industry could offer.
“We can let people know that after today’s announcement, there will be an increase in mortgage repayments and it could be a good time to review a client’s spending habits,” she said.
“During COVID, statistically people were saving money, so I suggest using that money by placing it in an offset account against your mortgage. If you get paid weekly or fortnightly, it saves you interest over the lifetime of your loan and you don’t have to find a lump sum of money at the end of the month.”
Elodie Blamey (pictured above right), a mortgage broker with Clover Finance in Melbourne said after today’s OCR increase, it comes down to giving people higher rate expectations for the future.
“We had 1.99% fixed rates over the last two years and we know that cannot last forever, so it’s important to warn our clients to avoid future culture shock,” Blamey said.
“Rates are now going back to where they were two years ago. The market is just realigning itself.”
Blamey said the latest RBA move would negatively affect lower income earners and first home buyers who were trying to buy into the property market.
“The increase means we will be servicing these clients at a higher rate,” she said.
“After last month’s increase and now today’s, it will make quite a big difference to a client’s borrowing capacity. This isn’t the last increase to the OCR we are expecting this year either, so we have to prepare ourselves and our clients for that.”
Blamey said Australians who were about to come off fixed rates for their home loan were going to be in for a shock.
“Hopefully they have extra funds in their redraw or have a buffer in place to help them with their new rate,” she said.
“My advice to people is not to be silly with your money. Continue saving and place extra funds into a redraw, even if it’s $25 a month, it is still $25 a month. This will help to avoid the OCR rate affect you too much.”
