Chapter 1: What decision did the RBA make regarding the cash rate?
It's the Real Estate Podcast, brought to you by ANZ Home Loans for financial well-beings. Well, the RBA, they have spoken. A lot of pundits, a lot of commentators around the country were picking 50 basis points. That's exactly what's happened. Let's welcome in Anthony Landale. He's the Managing Director of Equilibria Finance. G'day there, Anthony.
So 50 basis points, it's exactly what people were thinking it was going to be today. Yeah, pretty much as expected, Craig, and great to be here, mate. I think most commentators and most people expected another 50 basis points. It's taken the cash rate to 2.35%, and that's an overall increase since May of 2.25%.
So significant increase in the cash rate since May, which is now flowing through to mortgage holders, as we all know. Now, of course, the mortgage holders, they'll want to know exactly how that translates into their monthly repayments. So what does that work out to today?
Yeah, so if you've got a $500,000 mortgage, that additional 50 basis points increase when it's passed on to the variable rates will be $208 a month additional interest. If you've got a $700,000 loan, it'll be an additional $292 a month in interest. And on a million dollar loan, that 50 basis points increase will be an additional $417 a month in interest.
And just to give a little bit of perspective for mortgage holders since May, where the cash rate increased from 0.1%, we're now at 2.25% with month-on-month increases. For a mortgage holder, that's an additional $938 a month since May on a $500,000 loan. an additional $1,312 a month in interest repayments on a $700,000 loan, and an additional $1,875 a month on a million dollar loan since May.
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Chapter 2: How will the cash rate increase affect mortgage repayments?
So significant impact on mortgage holders with these month-on-month increases that are now flowed through to everybody. All right, good on you, Anthony. Thanks for jumping on today and we'll wait and see what happens next month. No worries. Great to be here. Thanks, Craig. So let's right now bring in Carlos Cacho, Australian Chief Economist and Banks Analyst at Jardin.
So that is in keeping with what most commentators were suggesting, a 50 basis points today. Yeah, exactly. We had 27 out of 30 economists surveyed by Bloomberg expecting 50 basis points the market was largely pricing it in. So no real surprises there today. I think it's business as usual, at least for the time being.
Now some commentators have been saying that they believe we've seen the worst of it, saying that while there are further rate rises to come, the pace will slow significantly. And what about this lag time that it takes for the full effect of interest rate changes to be realised? Yeah, that's right. Look, I think we've seen the majority of the hikes behind us now.
We're expecting still another 75 bips, but that's probably going to take place over the next two to three months. So we are probably going to see the RBA slow a little bit in the pace of hiking here. In terms of how long it takes to keep consumers, the banks generally pass on the higher interest rate to mortgages within about 10 days, so the following Friday after the RBA.
But it usually takes up to two to three months to actually feel the cash flow impact for households if their minimum repayments need to go up. So in our view, most households are only just now feeling the impact of the rate hike we saw in June. And it's not going to be until later this year that they start feeling the impact of this hike and indeed the one we saw in August.
And the Aussie dollar, now that has been yo-yoing around between US 72 cents and under US 68 cents. A weaker currency is inflationary. So explain that to the listeners, the importance of currency rate in relation to the RBA rate rises. Yeah, absolutely. You know, Australia is a small, relatively open economy. We import the vast majority of our consumer goods.
And so a weaker currency, all else equal, is going to see higher inflation. and we've already seen very high inflation, a lot of those categories that are important. One important thing to note though is that while the currency is weaker versus the US dollar, we're a bit more steady versus a broader basket of currencies.
So kind of using the RBA's trade weighted index, we haven't seen quite as much weakness And I think, you know, the key takeaway from that is that it's really more of a US dollar strength story than an Aussie dollar weakness story. We've seen the same with Japan at decade lows for the currency with the euro breaking through the one dollar mark or kind of one euro mark with the US dollar.
So it's more of the exceptionalism of the US dollar necessarily than the deterioration of the Aussie dollar. Yeah, and just having a look at the US, in June, the borrowers there were hit with a 75% basis point hike, sending the cash rate to as high as 2.5%. Now, the next US rate rise could be another triple 75 basis point, sending rates to as much as 3.5%.
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