As you probably would’ve heard the RBA has decided to increase the cash rate target by 50 basis points to 85 basis points.
In summary:
- Inflation is lower than in most other advanced economies
- Global factors; COVID Supply chain issues & Russia / Ukraine War
- Domestic Factors; tight labor market, demand for labor due to flood repair work on east coast
Looking Forward:
- Inflation is expected to increase further in short term, but decline back to 2-3% next year
- Short term impacts; electricity and fuel prices. Commodity prices are settling but still expect moderate increases, uncertainty around effect of Russia/Ukraine on agricultural commodities.
- The RBA expects further steps to be taken over coming months, but dependant on data.
It’s not all doom and gloom domestically:
- Domestic property prices have fallen slightly, still higher than pre-pandemic
- Household savings rate remains higher than pre-pandemic
- Many households have built up large financial buffers
How does this affect my mortgage?
A 50 basis point rise is roughly $500 per $100,000 borrowed per annum in addition to your repayments (interest only). Whilst we don’t believe this is going to largely impact our client base for those with debt it’s important to factor in this rise as well as the upcoming rises which are likely to occur.
How does this affect my portfolio?
As interest rates go up we can expect the market to re-price assets as well as price in the effect of increased cost of borrowings for those entities who use leverage to grow. Given the speculation and data released over the past few weeks this rate rise really isn’t a surprise therefore current prices would likely already have this news priced in.
If you are concerned or have any questions, please don’t hesitate to reach out – hello@sfgadvice.com.au or 02 8488 8130.
Best Regards,
Alex Naylor