In May 2022, in line with global inflation, the Reserve Bank of Australia (RBA) increased interest rates for the first time in 11 years. As evidenced by the post COVID-19 period, which saw acute supply chain shortages exacerbated by the war in Ukraine, the RBA attempted to return inflation to its target within a reasonable timeframe. In the 14-months since May 2022, the RBA determined that further increases were warranted and has since made an additional 12 cash rate raises.
This has pushed borrowing costs to their highest level since April 2012 and in turn has reduced the borrowing power of mortgage applicants.
While the cost of living remains a challenge both in Australia and abroad, the Annual Consumer Price Index (CPI) was 5.6 per cent in May 2023, down from 6.8 per cent in April. A reduction in inflation should see interest rates peak and then stabilise.
The future decisions of the RBA will be influenced by how the economy and price pressures evolve over time; however, projections indicate that inflation is expected to reach 4.6 per cent in mid-2023 and fall to 3 per cent in 2025^. This, in conjunction with the fact that employment remains strong and mortgage stress relatively minimal, are positive signs for the housing market.
Cash Rate Target