At Finder, we like to dig deep into the weeds when it comes to research and analysis.
We have entire teams of staff who spend their days tracking, reviewing, and analysing the latest trends and insights on anything related to the economy.
This is because our goal is to help everyday people make better, more informed financial decisions.
We aim to analyse all the data and turn it into simple, straightforward information you can understand and apply in your own lives.
All of which is to say, we have spent a lot of time paying careful attention to the Reserve Bank’s (RBA) movements.
And even we have been blindsided by just how quickly and how aggressively the RBA has lifted interest rates over the last few months.
After all, it was only March this year – just six months ago – that RBA Governor Philip Lowe stated:
“Inflation has picked up more quickly than the RBA had expected, but remains lower than in many other countries.
The central forecast is for underlying inflation to increase further in coming quarters to around 3.25%, before declining to around 2.75% over 2023 as the supply-side problems are resolved and consumption patterns normalise.”
We now know what happened next.
The following month, inflation figures skyrocketed.
In April it was 5.1% and by July, 6.1%.
The central bank moved fast to squash the temptation for us to spend (and push those inflation figures higher), by delivering a run of interest rate increases, one after the other.
Many millions of Australians are now paying much, much more for their mortgages than they were just a few months ago.
And they’re angry.
Perhaps they have a right to be?
The RBA is aggressively raising rates, despite Governor Lowe stating on the record, many times over, that they likely wouldn't rise until 2024.
At every board meeting, month after month, Lowe said something along the lines of:
“The Board… will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.
The central scenario for the economy is that this condition will not be met before 2024.”
Some people made big, expensive life decisions based on this forecast.
Finder research shows that based on the average $610,000 home loan (ABS), the average Aussie mortgage holder is paying a whopping $7,300 extra per year compared to what they were paying in April.
There are likely to be more rate rises in the next few months, so that figure will only get higher.
Over the last couple of years, I’ve wondered why the RBA felt so confident pushing the narrative that rates won’t rise until 2024.
We spoke about this in our regular RBA meetings at Finder, and I recently searched our chat history to see what trends we were following along the way.
This was after the April 2021 meeting:
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This was in July 2021:
And this, from January this year:
I don’t envy the RBA, because predicting where the economy will go is an almost impossible task.
We know because we ask the experts for their views on it regularly.
We canvas a panel of 40 industry experts every month for their take on what might happen next, and their insights are always interesting.
But as economist Nicholas Gruen from Lateral Economics shared with us mid-way through last year,
“It's pure guesswork at present [to predict] when the recovery will have taken hold.”
Why did the RBA try to predict it, then?
In the past, they’ve never really “forecasted” too far into the future.
The pandemic came along and swiftly turned the economy upside down.
So now, as the economy moved forward, why was the RBA so certain about this timeline?
They could have continued to say “we will not increase the cash rate until inflation is 2–3%”, without continually adding “this isn’t likely until 2024”.
In February last year, we put a call out to our group of economists and experts and asked: When do you think the cash rate will increase next?
|2025 or beyond||4%|
A massive 41% of experts predicted a rate increase in 2022.
Only 19% held the same view as the RBA, that rates wouldn’t rise until 2024.
Yet, that’s the message that people heard.
I can understand why, now, mortgage holders feel like they haven’t had enough time to prepare.
If you thought you had several years of low rates ahead of you to save and make extra home loan repayments, these monthly increases must hit extra hard.
Mortgage interest rates are likely to increase again (and again) in the next few months.
There’s not much we can do about the past, but we can make sure we’re on the front foot going forward.
If you have a mortgage, your ideal next steps are:
- Check the details of your current loan: the rate and the length. If you have more than one loan, gather the information on all loans in one document so you know what’s what.
- Call your bank (or banks): And ask it if this is the best deal it can offer you? If it’s not willing to budge on the rate, will it waive your annual fee to prevent you from taking your loan elsewhere?
- Review the market: Odds are, there’s another lender out there willing to give you a better deal. Banks are still very competitive and interested in getting your business, so shop around and refinance to get the best deal on your home loan.
- Diarise future milestone dates: Got a fixed rate home loan? Make a note in your calendar for two months before it comes due. That’s your ideal time to start shopping around for a better deal.