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[Timestamp: 00:07:05]
The Reserve Bank of Australia announced on 19 March 2024, they are holding the cash rate at 4.35%.
Bendigo mortgage broker and director of Proactive Finance Group, Hayley DeJong, explains how the RBA uses the cash rate as a tool to control inflation.
"The RBA are trying to get inflation under control. Inflation target is around 2 to 3%. What that means is they do not want the cost of services or products to be increasing by 2 to 3% per year," says Hayley.
"It did get up to over 7% where we have seen the cost of petrol and the cost of groceries taking a real jump which is putting a lot of pressure on household expenditure.
"[The RBA] are trying to bring that down and the only tool that they really can use is increasing the cash rate. Mortgage rates go up and mortgage repayments increase, which means people aren't spending as much on these things."
While interest rates remain at 4.35%, Hayley says consumers will continue to hold back on spending with businesses likely to feel that pressure over the Easter holidays.
"Business owners are greatly impacted by this because borrowers are not spending as much, so they're going to be feeling a drop in their sales. It also means they're putting staff off which we're seeing with the unemployment rate going up. It's a really tough time for businesses at the moment.
“Someone recently said, ‘Have you seen the price of Easter eggs this year?’ which is another indicator of inflation.
"People are really conscious of how much money they're spending, and that's definitely going to have an impact. We will still see lots of people out and about and doing things, but they might be a bit more conscious of how much they're spending on eggs and what activities they're actually doing over Easter."
So what should we be doing as the cash rate holds? Hayley suggests a proactive approach is essential for alleviating financial stress.
"At the moment, borrowers should be just getting the lowest rate they can possibly get. If they don't want to change banks, then contact your bank and see if they can drop your rate.
"I would contact your mortgage broker and get some advice from them about what options you have to try and reduce your mortgage rate or repayments. There could be simple things that they can do.If they're really struggling, they might be able to change it to extend the loan term.
"Interestingly, there's a lot of things that a mortgage broker might be able to help them do to try and help relieve that pressure until those rates are coming down, as long as it's within the best interest for the client."
This is not financial advice. We recommend you speak directly with your accountant, bank or mortgage broker about your unique situation.
Photo credit - Gingerhouse Photography