The Reserve Bank hands down its next cash rate decision on 29 September, and it’s not the kind of meeting you can safely tune out of. The cash rate currently sits at 4.35%, having already climbed 0.75 percentage points this year across three separate moves. Whether it goes up again this month is still unknown, but there’s enough in the data to suggest borrowers shouldn’t be caught flat-footed either way.
Why another rise is on the table
Inflation is the main sticking point. The most recent figures, for the year to July, put trimmed-mean inflation at 3.6% – still above the RBA’s 2–3% target band, and essentially unchanged from the month before. That’s the kind of stubborn reading that keeps a rate rise firmly in play.
Layer on top of that an economy that’s proving more resilient than expected. GDP grew 0.4% in the June quarter, household spending held up better than weak consumer sentiment would suggest, and while employment eased slightly in July, it’s still 1.3% higher than a year ago. None of that is booming growth, but it’s not the kind of slowdown that gives the RBA an easy excuse to sit on its hands.
The major banks have shifted their calls accordingly. CommBank, Westpac and NAB are all now expecting a 25-basis-point rise this month, taking the cash rate to 4.60%. ANZ is the most hawkish of the four, tipping back-to-back rises in September and November that would push the rate to 4.85%.
What borrowers can actually do about it
Waiting to see what happens on 29 September and reacting afterwards is one option. A better one is running the numbers now, so a rate rise – if it comes – means you’re better prepared. On a $600,000 loan balance, a 0.25 percentage point increase adds roughly $97 a month to repayments. On $800,000, it’s closer to $129.
A few practical steps worth doing:
- Stress-test your repayments against a possible +0.25% rise in September, and a further +0.25% in November for the more aggressive scenario
- Check whether your budget still works once rates, insurance and everyday costs are all accounted for
- Direct any spare cash into an offset account or a repayment buffer
- Check if your current rate is still competitive
- If your fixed rate is expiring, check what your variable rate might be and whether refinancing makes sense
Key takeaways
- The RBA’s cash rate decision lands 29 September, with major banks tipping a 25bp rise to 4.60% – and ANZ forecasting a further rise to 4.85% by November
- Inflation remains above target and the economy has proven more resilient than expected, both supporting the case for a rise
- Stress-testing your budget now, rather than after a decision, is the sensible move regardless of which way it goes
Not sure how a rate rise, or another hold, would affect your position? Based in Richmond, Melbourne, but working with borrowers across Australia – get in touch before the next RBA meeting.
