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Interest Rates Up, Highest Since 2015

Interest Rates Up, Highest Since 2015

The Reserve Bank has lifted the cash rate another 50 basis points, bringing it to 2.35 per cent, the highest since early 2015.

The RBA has introduced double rate hikes since May. Commonwealth Bank’s head of Australian economics Gareth Aird said that Aussies are only just feeling the impacts of the first two rate rises, meaning hikes made in July and August are yet to hit.

“Interest accrues from a lender’s effective rate change date, which is typically about two weeks after the RBA increases the cash rate,” he explained.

“The lags across other lenders vary, but we estimate that on average the lag is around two to three months across the major lenders.

“This means that the bulk of our borrowers have only felt the impact of one 25-basis-point hike on their cash flow, or potentially, as of this week, the cumulative impact of the May 25-basis-point rate hike and June 50-basis-point rate increase.”

 

Philip Lowe, RBA Governor said: “The Board is committed to returning inflation to the 2–3 per cent range over time. It is seeking to do this while keeping the economy on an even keel. The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments. The outlook for global economic growth has deteriorated due to pressures on real incomes from high inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine, and the COVID containment measures and other policy challenges in China.

“Inflation in Australia is the highest it has been since the early 1990s and is expected to increase further over the months ahead. Global factors explain much of the increase in inflation, but domestic factors are also playing a role. There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy.”

Lowe expects inflation to peak later this year and then decline back towards the 2–3 per cent range.

“The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, recent declines in some commodity prices and the impact of rising interest rates. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.”



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