On the 2nd May 2023 the Reserve Bank increased the cash rate by another .25% which took the cash rate to 3.85%. Very soon after this announcement the four major banks increased their interest rates.
Today 16 May 2023 the Bank released the minutes from their meeting on the 2nd May 2023 and this tells us a lot of information as to the reasons for the increase to the cash rate. The major problem here in Australia is the Bank is concerned about the increases in rents for residential property as these are reflected in the inflation rate.
The major concern of the Bank is that residential rental properties are becoming scarce and that can be measured in the vacancy rate across the Sydney basin and in most other centres across the country. The other factor that has the Bank very nervous is that Australia has opened its borders and the Government is expecting approximately 700,000 new arrivals in the next two years.
There are many people in this country who are suffering under the increased cost of living and another amount added to their monthly payments will not help at all. The Bank acknowledged that a number of the measures that make up inflation have either reduced or become steady but as mentioned above the concern is the increases to residential rents.
A lot of analysts were waiting to see what the Federal Government was going to do with the annual budget announcement on 9 May 2023. A number of economists are unsure as to how the budget will impact the rate of inflation as there were a number of measures that could increase the rate of inflation. It was very important for the Government to assist people on low incomes or on Government benefits to ensure they are able to survive.
The underlying message from the Bank is that they are insistent on bringing the level of inflation back to under 3% where it is currently running at approximately 7%. Given the tone of the minutes released on 16 May 2023 there may be further interest rate rises in the second half of 2023. Some analysts are saying there could be two further rises. There are some analysts saying the next movement in interest rates will be a reduction.
I would suggest that anyone with a large mortgage brace themselves for I think at least another two rate increases prior to the end of this calendar year.
