RBA takes interest rates to 15-year highs (and borrowers to new lows)
Key takeaways
- The RBA has increased the cash rate to 4.60%, a level not seen since late 2011.
- The average borrower is now $427 a month worse off than they were in January.
- Nearly half of Finder's experts predict another rate hike by the end of the year.
The Reserve Bank of Australia (RBA) decided to raise the official cash rate to 4.60% at its meeting today.
The move was widely expected, with 90% of Finder's experts predicting today's hike. It's the fourth rate hike in 2026.
The bank's decision takes Australian interest rates to highs not seen since November 2011 (when the cash rate fell from 4.75% to 4.50%).
Ready to look at refinancing?
Compare other home loan rates to see if you could be on a better deal.
Why did the RBA raise rates today?
RBA leaders have been very clear in recent weeks about the need for higher interest rates. Inflation is still too high and unemployment remains low.
"Inflation remains elevated and some of the upside risks flagged in August are materialising," the RBA board said in a statement today. "The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts."
Annual inflation in July was 3.5%, while underlying inflation was 3.6%. The ongoing US-Iran war is pushing oil prices back up, driving up costs across multiple sectors of the economy.
And while property prices are definitely coming down, established housing costs are not part of the "basket of goods" used to measure inflation.
By raising rates and driving up the cost of borrowing, the RBA hopes that households and businesses will have less money to spend and invest, thus driving inflation down.
That's the goal, but there's no interest rate that can open the Strait of Hormuz.
Silver lining for (silver) savers
It's not all bad news. If you have:
- plenty of money in your savings account
- no home loan debt
- a low cost of living…
You stand to benefit from higher rates. You could be getting a return of 6% or more on your savings.
Cashed-up retirees are laughing right now.
Borrowers bearing the brunt
And the losers? People who've bought homes recently or have large mortgages.
This is typically younger families, who are also very exposed to wider cost of living pressures (ask me how I know…).
The average home loan in Australia is now $736,259. Back in 2011 it was just $356,046.
Factoring in four rate rises this year, and assuming an average starting rate and a 30-year loan term, the average borrower is forking out around $427 a month more on their mortgage than they were at the start of the year.
That's over $5,000 a year extra borrowers are losing in the fight against inflation.
What should borrowers do now?
If you've got a home loan, the rate hike is coming.
Lenders will begin passing today's rate increase on to their variable rate home loans in the coming days and weeks. You can keep track of it all with our rate hike tracker.
Now is a good time to:
- Run the numbers. Find your current rate and work out what a 25-basis-point increase does to your repayments using a mortgage calculator. Figure out what it will cost you and whether you can afford it.
- Start comparing home loan rates. See if any lenders are offering a better deal for new customers. Shop around and find a better rate if you can.
- See if your lender can offer a better rate. You can also talk to your current lender and see if they'll match a lower rate you've found elsewhere. It never hurts to ask.
- Refinance. But if your lender won't budge and you find a better rate, it's time to jump ship and save some money. You might even be able to snag a home loan cashback for switching.
Sources
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