The RBA cash rate is on the rise
On July 5, 2022, The RBA raised the Australian cash rate by 0.50 percent for the second month running, taking the cash rate to 1.35 percent. For the first time since 2010, the RBA went back-to-back-to-back, raising the cash rate three times in just over two months between May and July 2022 from its record low level of 0.10 percent.
The rate rises, the size of the increases and the three in a row indicate that the RBA is concerned about inflation. But with the RBA rate rises comes the reality that you may find yourself with less money in your pocket at the end of each month than you had before, particularly if you are paying off a mortgage or a loan. With this in mind, what can you expect from here, and what can you do to help lessen the impact?
If you have a mortgage, shop around
In typical fashion, the major banks and lenders passed on the full 0.50 percent rate increase almost immediately after the RBA increased the cash rate in July.
If you have a mortgage and are using a variable rate, for every half a percent increase on a million-dollar mortgage, it adds approximately $400 per month to the interest repayment.
This can make it even more important to shop around and ensure you are on the best home loan rate available to you. Raiz Home Ownership can help find competitive rates when buying or refinancing a property.
For those that locked in a fixed rate, you have spared yourself from the rate rise until your mortgage reverts from a fixed rate back to a variable rate.
Businesses will likely feel the pinch of higher rates
Businesses may attempt to absorb these higher interest costs and import good costs. The business may also try to pass these along to the consumer in the form of:
- Higher prices.
- A tiered service pricing, where the basic product is one price and the deluxe is higher.
- Shrinkflation, where they offer less of the same product or service for the same price.
It now costs more for the Australian Government to borrow
The near trillion-dollar debt current held by the Australian Federal Government is set to get more expensive to repay, with every 0.50% increase set to cost the Government approximately $5 billion more per year. The thing about Government debt is that it is really the debt of all Australians, aimed to be repaid over time primarily using tax revenue. This means if rates continue to rise, the Government may also likely look to either cut its spending or may try and get its hands on some additional taxes.
What can you do to help curb the effect of rising interest rates?
Here are some things you can do to try and limit the effect interest rises have on your day-to-day expenses:
- Know what your interest rates are for all your debt products, including credit cards, car loans, home loans and business loans if you run your own business. Find out what competitors are charging. You may find you can save money by switching products.
- Contact your lender to discuss your options and speak to other lenders. Raiz Home ownership can help with buying or refinancing a home, so it may be worth a comparison to see if they can get you onto a better rate.
- Make or update a personal budget to determine where you can spend less or save more. Expect to factor in some more rate rises in 2022, as that is what the financial market is currently predicting. Remember rates are rising because of inflation, which will cause cost of living to go up.
- Take advantage of cashback opportunities in your everyday spending. Raiz Rewards can help with this and a paid Raiz survey a day can’t hurt either. Raiz Rewards even has cashback incentives with up to $112 invested when you switch your energy, or $56 invested to switch your broadband (accurate July 2022).
Even small steps can help when faced with rate rises
Breaking it down into small bits can help to alleviate the sting of the increase in cost of living. If you are facing costs, small steps like shopping around or bringing your lunch to work every now and then can help to absorb some everyday costs. Every bit counts!
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