RBA takes its foot off the accelerator with a 0.25% hike

The RBA has today increased the cash rate by 0.25 percentage points to 2.60 per cent, as the Board continues its efforts to curb inflation.

After six consecutive hikes, the cash rate is now at the highest point since the July meeting in 2013.

If lenders pass on the 0.25 percentage point hike, as expected, the average owner-occupier with a $500,000 loan and 25 years remaining will see their repayments rise by $74. Since the start of May, the total increase in monthly repayments will be $687.

Increase in monthly repayments

Calculations are for existing customers and based over 25 years

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average existing customer variable rate and assuming the hikes are passed on in full.

The RBA has today scaled back the size of the hikes, as the Board “assesses the outlook for inflation and economic growth in Australia”.

If the banks pass on today’s 0.25 percentage point hike in full, RateCity.com.au estimates:

• The average existing owner-occupier variable rate will be 5.36%.
• A competitive variable rate will be just over 4% for owner-occupiers paying principal and interest.

When will the banks announce their RBA changes?

The time taken for the big four banks to make their RBA rate announcements has been getting longer.

In the last three years, the big four banks made their rate announcements at the latest by the day after the RBA’s decision.

However, this has blown out in the last two hikes. In August, all four big banks waited around two days before making their announcements, while in September, NAB was the first to announce three days after the RBA decision. The question is how long will their customers be waiting this month?

RateCity.com.au research director, Sally Tindall, said: “The RBA has taken its foot off the accelerator by reverting back to a standard 0.25 percentage point hike this month as it assesses global and domestic factors.”

“Governor Lowe is walking a very fine line in trying to tame inflation, while keeping the economy strong,” she said.

“Variable rates have now risen 2.5 percentage points since May, which means the average owner-occupier will soon be paying a rate that’s well over 5 per cent.

“The rate hikes aren’t expected to end today, with Governor Lowe indicating there are more to come.

“Borrowers need to remember there’s a lag on when the RBA hikes official rates and when extra money comes out of their bank accounts. People might think they’ve conquered five rate hikes already, but the reality is, most variable borrowers have only felt the impact of the first three.

“All eyes are on the banks as to what they’ll announce and how long they will make customers wait.

“The banks have shown they’re entirely capable of making their RBA rate announcements within 24 hours of a rate hike. There’s no reason for them to hold back from telling customers what impact this will have.

“If you’re an owner-occupier, and your rate starts with a ‘5’, then do something about it. Call up your bank and ask for a better deal or consider refinancing to a lender willing to charge you less.

“The latest ABS lending indicators released today show that refinancing just hit another record high. This is fantastic news because it means that many borrowers aren’t taking these rate hikes on the chin – they’re being proactive and moving to a lower rate.

“We expect a competitive variable rate to be around 4 per cent once this hike filters through, but only for new customers,” she said.

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