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Cash rate call: RBA sets the tone again
For the third time this year, the Reserve Bank of Australia (RBA) decided to hike the cash rate by 0.25 points to 4.35 per cent, costing the average borrower an extra $2,661 per year.
The RBA has now hiked rates for a third straight meeting, returning the cash rate to 4.35 per cent, matching its November 2023 peak.
The central bank’s decision comes as little surprise amid rising fuel and cost-of-living prices, ongoing tensions in the Middle East, and persistent inflation.
According to PRD chief economist Dr Diaswati Mardiasmo, the rising inflation at 4.6 per cent was well above earlier forecasts and accelerated by broader global pressures, including the impact of war on the cost of living.
The Australian Bureau of Statistics’ (ABS) March consumer price index (CPI) indicator showed annual headline inflation lifting to 4.6 per cent, up from 3.7 per cent on February’s numbers.
Despite annual trimmed holding steady at 3.3 per cent, it was not enough for the RBA to keep the cash rate unchanged.
“The RBA, of course, responds by curbing inflation where possible, despite external pressures, while also trying to maintain employment stability and avoid businesses cutting hours or reducing their workforce due to higher costs,” Mardiasmo told SPI.
She said that while another hike will slow further buyer activity, as we have already seen decision-making time increase and borrowing capacity tighten, opportunities in the market still exist.
“As a result, transaction times are longer, and although prices in most capital cities and regional areas are still expensive, the growth rate has slowed down a little.”
“So it is still a great time to transact.”
“Sellers can still capitalise on higher prices, and thus profits, especially if they have held the property for a while. And there is a slower pace of price growth, which assists buyers and creates opportunities.”
For home loan owners, Mardiasmo said a rate increase would add pressure, but noted that property has historically held up over 5–10 year cycles with continued equity growth.
She said that despite the current rate being at 2024 levels, a future rate hold would provide much-needed relief for household cash flow and budgeting stability.
Similarly, principal at Finni Mortgages, Eva Loisance, said that the hike will further impact borrowing capacity for new entrants and add mortgage stress for current loan holders.
Data showed that 39 per cent of home owners said they were struggling to pay their mortgage in April, up from 35 per cent in January this year.
“For first home buyers, the rate increase further erodes borrowing capacity and pushes more buyers out of the market’s lower price bands, although the Federal Budget may soften the blow if it expands deposit schemes or shared‑equity programs,” Loisance told SPI.
In contrast, Loisance said that strong rents and ongoing undersupply have been supporting yields and pushing activity toward cash-flow-positive assets, positioning investors ahead of potential stabilisation in rates and policy settings.
“The Budget will also be critical to the investment activity. Any incentives for build‑to‑rent, depreciation, negative gearing, CGT changes or supply‑side measures could shape investor confidence,” she concluded.
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