Going back-to-back-to-back with 50 basis point increases, the RBA has now increased the cash rate for four consecutive months.

This has delivered 175 basis points worth of tightening to see the cash rate reach its highest point in six years.

For homeowners with an average sized mortgage, a 30-year 3.00% p.a. interest rate increasing to 4.75% p.a. over the past four months means paying an extra $615 in interest costs each month.

Reserve Bank Governor Dr Philip Lowe said the Australian economy is expected to continue to grow strongly this year, however a key source of uncertainty continues to be the behaviour of household spending.

"Higher inflation and higher interest rates are putting pressure on household budgets. Consumer confidence has also fallen and housing prices are declining in some markets after the large increases in recent years," Dr Lowe said.

"Working in the other direction, people are finding jobs and obtaining more hours of work. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic.

"The Board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy."

Finspo CEO and Co-Founder Angus Gilfilian said these sharp rate hikes are putting significant pressure on household budgets.

“Theoretically households should still be able to afford their home loan as banks are required to assess customers on rates 3% above their actual interest rate,” Mr Gilifilian told Savings.com.au.

“However, coupled with rising cost of living, it will start to make balancing the household budgets difficult.”

The increase to the cash rate comes as no shock to economists, with many expecting the RBA to hike another 50 basis points in August, although some were open to the possibility of a 75 basis point hike.  

PropTrack Senior Economist Eleanor Creagh said despite the cash rate rising at its fastest pace since 1994, this was widely expected given the RBA has signaled a desire to "get ahead of the curve" and "do what is necessary" to overcome the challenge of high inflation.

"The economy has entered the tightening cycle with strong momentum and although consumer confidence has dropped, the labour market is tight, the unemployment rate is at a 48-year low, vacancies are at record highs and business conditions remain strong," Ms Creagh said.

"These conditions will allow the RBA to continue raising the target cash rate toward their estimates of the neutral rate, whilst monitoring household spending as interest rates rise – a key source of uncertainty.

“How household spending holds up against a backdrop of higher inflation and falling house prices, versus savings and wealth buffers, and hopefully stronger wages growth, will be crucial in determining the loss of conditions in the economy and how high and fast the cash rate rises."

Westpac Chief Economist Bill Evans expects the RBA to hike by 50 basis points again in September, taking the cash rate to 2.35%.

"A revised profile sees the Board raising the cash rate by a further 0.5% in September to 2.35% - near the Governor’s estimate of neutral which is 'at least 2.5%',” Mr Evans said.

CommBank economists have previously tipped the RBA to cut the cash rate from a peak of 2.6% starting in late 2023, while Westpac and ANZ now expect a peak above 3% with cash rate cuts by mid-2024.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
Principal & Interest
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5.99% p.a.
5.90% p.a.
Principal & Interest
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  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
Principal & Interest
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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Image by Michael Krahn via Unsplash

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