The official cash rate has risen from 0.85% to 1.35%

6 Jul, 2022

The official cash rate has risen from 0.85% to 1.35%

The Reserve Bank of Australia decided to raise the cash rate by 50 basis points from 0.85% to 1.35% at its July meeting.


  • The inflation rate would reach its peak later this year and then return to the 2-3% level the following year
  • The household saving rate is greater than it was before the pandemic
  • There are still chances for home buyers

July’s rate increase was the third in three months, and the cash rate is now at its highest level since May 2019.

“Inflation in Australia is high but not as high as it is in many other countries,” says Reserve Bank governor, Philip Lowe.

“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.”

According to RBA’s media release, the inflation rate would reach its peak later this year and then return to the 2-3% level the following year.

Inflation is expected to fall as global supply-side issues continue to ease and commodity prices stabilise.

“Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services.”  says Philip Lowe.

The interest rate rise maybe bad news for people holding mortgages if they do not start to plan.

The implications of this rise for the average owner-occupier with $500,000 debt and 25 years remaining will see their repayments rise by $137. The same borrower would have already endured a $333-a-month increase from where interest rates were prior to May 2022.

What has affected the economy over June?

The international economy experienced a difficult period as the Ukraine war escalated in June. Commodity prices skyrocketed, energy and fuel prices rose, together with the increasing inflation, all leading to a global economic downturn.

As the war continues, the cost of food has also increased.

According to the Food and Agriculture Organisation’s (FAO’s) recent study showed that Food Index Prices are at their highest since 1990.

In Australia, we’ve seen a significant drop in consumer confidence as higher mortgage rates and rising living costs have squeezed every household’s budget, which has been worsened by natural disasters.

Food costs rose by about 7% over the previous year and petrol costs are already above $2/ltr nationwide.

On the plus side, the national unemployment rate is at its lowest in 50 years, at 3.9 per cent. Job vacancies and job ads are both at record highs, and the unemployment rate is expected to fall further in the coming months.

This recent increase in minimum wages and uplift in job demand is expected to help increase consumer spending, borrowing, and economic confidence.

June’s Property Market Update

Throughout June, the housing market conditions became more varied compared to previous months.

Growth assessments in Perth, Adelaide, and Brisbane performed best in June. Despite significant growth outside of Canberra, Sydney, and Melbourne, these trends are gradually reversing due to high inflation and rising interest rates.

According to Corelogic, the Home Value Index declined for the second month in a row in June, with the dwelling values across the five largest cities falling by more than 0.8%.

Values declined when there was a decline in consumer confidence, a rise in global unease, rising inflationary pressure, and the first increase in the cash rate since 2010.

“More recently, surging inflation and a rapidly rising cash rate have added further momentum to the downwards trend. Since the initial cash rate hike on May 5, most housing markets around the country have seen a sharper reduction in the rate of growth” Tim Lawless CoreLogic Research Director said.

Source: Corelogic

Vacancy rates are at an all-time low of 1%, making it harder for people to get into rental housing. This, in hand with recent land restrictions, has brought down the entire housing supply.

Rents rose 0.9% nationally in June, bringing the annual growth rate to 9.5%. This is the fastest yearly growth rate seen since December 2007, when record-high levels of immigration into Australia increased demand for rental properties.

“Such strong rental conditions through the current cycle have occurred largely in the absence of overseas migration, although the reopening of international borders is likely now adding further upwards pressure on rental demand,” Tim Lawless CoreLogic Research Director.

There is still hope for home buyers! 

For first-home buyers and owner-occupiers 

At the same time as interest rates rise, term deposit and savings account rates are starting to increase.

The household saving rate is greater than it was before the pandemic, and many households have built sizeable cash reserves and are now reaping the benefits of faster income growth.

Plus, a cooling market can be a good sign for buyers who might struggle to compete in the property markets, such as first-time home buyers or those on a tight budget.

As there will be less competition in the market, they will have more options and a better chance of obtaining the best deal.

For property investors

Despite the recent rise in inflation and interest rate, the housing market remains stable and a safe haven for investors.

Last month, the Australian property market was valued at $10 trillion. NSW accounts for 40% of Australia’s total value of homes, for a total value of $4.1 trillion. Followed by Victoria and Queensland at $2.7 trillion and $1.7 trillion, respectively.

Sources: ABS

Furthermore, construction in three sectors across the country, housing, apartments, and commercial, all fell in June due to labour shortages, supply chain issues, and ongoing interest rate hikes, according to The Australian Performance of Construction Index released earlier this week.

New building activity is expected to slow further over the next three months. Together with the Interest rates rising and decreasing vacancy rate, this will have a knock-on effect on the rising costs to rent, meaning now is the right time to invest.

So even though the falling trends are spreading throughout the housing industry, the increase in demand, rising incomes and limited supply may help somewhat reduce the risk.

Get ahead of the property market!

Despite rising cash rates, affordable home is still within reach. There are many suburbs across Sydney where you can buy for under $500k and secure today’s interest rates before the further rise.

If you’re still uneasy about where or what to buy, buying off the plan might be a great way to get ahead of the increasing inflation.

Talk to our team today to see what’s on offer.


Last updated: August 2020


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