What does the cash rate increase mean?

Yesterday, the Reserve Bank of Australia raised the cash rate for the first time in more than a decade, increasing from 0.10% to 0.35%. But what does this mean if you’re looking to make a move in the property market?

Cost of living in Australia

As seen around the country, the prices of food, fuel and materials has shot up. Recently, the Australian Consumer Price Index (CPI) was reported at 5.1 per cent for the annual reading, rising 2.1 per cent in the first quarter of 2022, according to ABS. With this, we saw the most significant price rises being new dwelling purchase by owner-occupiers (+5.7%) and Automotive fuel (+11.0%). This means that all aspects of our lifestyles have increased in some capacity.

How is inflation linked to interest rate rises?

Inflation and interest rates are directly connected. You see, interest rates are the main tool central banks use to manage the rate of inflation. When the banks increase their interest rates, borrowing money becomes more expensive and therefore harder to achieve. When borrowing money becomes more expensive, you see a drop in demand for goods and services. This leads to greater savings and super, which earn interest on the growth of that money.

cash rate rise
So, what does this mean for property buyers? With any change to the market, it is best to reassess your situation. This increase could mean it is a good time to:
  • Readjust your savings plan
  • Know how to refinance to a better rate
  • Take advantage of the drop in potential home buyers
  • Pivot your plan to move and renovate your current home
Whatever your situation, it is best to speak with a finance professional. Request a free finance health check with a Loan Gallery Broker and find out how you can make the most of the current market.

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