The Reserve Bank’s next cash rate decision remains finely balanced, with upcoming inflation data likely to be decisive, according to Compare the Market’s Economic Director, David “Kochie” Koch.
Shock employment data showing a higher-than-expected rise in the number of jobless Australians will have given the RBA pause for thought, but Mr Koch said next week’s inflation data release would be equally important.
“The RBA has two key objectives: keeping inflation under control and supporting employment,” Mr Koch said.
“As soon as those unemployment figures came out, the chances of a rate rise dropped from about 40% to 10%. Markets are saying the Reserve Bank may put inflation concerns aside to focus on jobs.
“But if we get a dirty inflation figure that comes in higher than expected, then I reckon the Reserve Bank is going to say, ‘All bets are off—we’ve got to focus on inflation,’ and there could be a rate rise.
“The magic number to remember is 3.6%. That’s trimmed mean inflation. If it comes in higher than that, there will probably be an interest rate increase. If it’s around that mark or below, we might be safe for now.”
Mortgage holders with an average loan of around $731,000 are already spending $464 more a month on repayments following the four 0.25 percentage point hikes that have occurred this year.
A fifth 0.25 percentage point rate hike would add another $114 to monthly repayments, bringing the cumulative monthly increase to $578—that’s nearly $7,000 more over the course of a year.
Impact of a potential rate rise on Australian mortgage repayments
| Loan size | Monthly impact of a 0.25% rate increase | Monthly impact of x2 0.25% rate increases (0.50%) | Monthly impact of x3 0.25% rate increases (0.75%) | Monthly impact of x4 0.25% rate increases (1%) | Monthly impact of x5 0.25% rate increases (1.25%)
|
| $500,000 | $78 | $157 | $237 | $318 | $399 |
| $600,000 | $94 | $188 | $284 | $381 | $479 |
| $750,000 | $117 | $235 | $355 | $476 | $599 |
| $900,000 | $140 | $282 | $426 | $572 | $719 |
| $1,000,000 | $156 | $314 | $473 | $635 | $799 |
| *Calculations assume an owner-occupied loan with a variable interest rate starting at 5.25% that is increased by 0.25% a month. It assumes a 30-year loan term, with no ongoing fees. This does not take into account the reduction of the loan balance over time. | |||||
Mr Koch encouraged Australians with a mortgage to take steps to reduce their costs by negotiating a better interest rate.
“The RBA decision is out of your control, but there may be levers you can pull with your bank or broker,” Mr Koch said.
“First, jump on your banking app and check your current rate. Then check your lender’s website to see what it is offering new customers and whether that deal matches yours.
“Next, take a look at a comparison website or call a broker to see what else is on offer. Even a reduction of 0.25 percentage points could be meaningful, especially if you still have a couple of decades left on your loan.
“Remember, you’re not just improving your cash flow by reducing your repayments now – you’re trying to cut the interest you pay over the life of your mortgage. Keeping on top of your rate could amount to tens of thousands of dollars in savings over the years you’re paying off that loan.”
