RBA Newsflash: February 2023

Updated February 7th 2023

The Reserve Bank of Australia has delivered its ninth consecutive rate rise, with its board deciding to raise the cash rate by 25 basis points to 3.35% this afternoon.

Following a run of rate rises that began in May last year, the RBA confirmed it would maintain its focus on containing inflation by hiking interest rates again this month.

The RBA’s February decision was widely forecast, and most banks and economists are predicting between one and three further rate rises will come by the end of 2023.

RBA governor Philip Lowe said CPI inflation in Australia of 7.8% was the highest since 1990 and in underlying terms a rate of 69% was higher than expected.

According to a  poll of 24 economists conducted by the Australian Financial Review, this would see the cash rate peak between 3.35% and 4.1%, with outlying predictions as high as 4.85%.

The decision will make conditions harder for borrowers, who have been forced to adjust their expectations to include significant increases to loan payments over the past year.

Borrowers already feeling rate rise pain

While rising interest rates were aimed at reducing spending in the economy, they were now really affecting households.

I really do hope the RBA is listening and the government is listening, because households are heavily impacted and some at the moment are quite stretched “I don’t think we’re allowing enough time for past interest rate increases to come to fruition.

By going so hard so quickly, by raising interest rates every month, by not allowing things to sit and breathe for three to six months, we’re not able to see the full impact of that.

People were making life-changing decisions, including a client who recently downsized from a $2.5 million property to one worth $1.8 million to help more easily meet loan payments.

Equifax warned signs of stress are beginning to show among borrowers under the age of 45 and this would only get worse as the RBA raised rates and cheap fixed rates loans expired.

Data shows 70% of people who bought property during or shortly after COVID-19 were under 45, a substantial increase on the 40% of buyers in this age bracket buying before this time.

While mortgage arrears impacts have been minor, Equifax said the balances of borrowers in this group were now going in the wrong direction, amortising upwards rather than down.

Business confidence is also an issue right now, even more than repayment problems.

People are quite sensitive and there is some belt tightening going on, but we do look at this closely and we haven’t seen our arrears increasing just yet.

Uncertainty is the biggest killer at the moment. People are concerned when this is going to end; if they knew where the end was, then they would have some certainty.