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December 2023 Interest Rates On Hold

Interest Rates December 2023

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The Reserve Bank of Australia has interest rates on hold for December 2023, citing expected decreases in the annual inflation rate. Inflation has been one of the main drivers of interest rate increases.
The annual inflation rate decreased to 4.9% in October from the previous month’s 5.6%, surpassing market expectations for a 5.2% surge in the consumer price index.
However, although inflation has fallen, RBA governor Ms Bullock remains aware that the 13 interest rate hikes since May last year have not fully impacted the economy. Typically, changes in the cash rate take 12 to 18 months to filter through to households and businesses, and the spike in fixed-rate lending during the pandemic may cause transmission to be slower during this cycle.

Australian Dollar Rises and helps curb inflation impacts

To support the RBA’s efforts to fight inflation, the Australian Dollar has risen 2% on a trade-weighted basis since November’s start due to a weaker US dollar. The Australian Dollar has also been driven higher by the belief that the US Federal Reserve has stopped raising rates, resulting in a rise to US66.1¢ from US63.2¢ since the beginning of November, which could exert downward pressure on import costs if sustained.

interest rate in graphs

OECD believes rate rises have stopped

Last week, the OECD, headquartered in Paris, declared that the RBA had completed their cycle of rate increases and will initiate rate reductions during the third quarter of 2024.

Home Loan interest rates impact households

Over the last year, the rapid rise in interest rates has been most acutely felt by the 3.2 million households with a mortgage. These households have sometimes experienced monthly repayment increases of more than $1000. For example, with the cash rate at 4.35%, a home with a $600,000 loan is paying $1510 more each month than in May last year, a 59% increase, according to What If We Finance.

Borrowers with a $750,000 or $1 million mortgage pay $1815 and $2420 extra monthly, respectively. Mortgage Broker shows how borrowing power has fallen.
The higher interest rates have also resulted in a sharp reduction in the amount of money households can borrow to purchase a home. For instance, a family with a $160,000 household income and two children have seen their borrowing power decline by 28% to $643,400 since May last year, according to mortgage broker What if We Finance.
Similarly, a single person earning $75,000 can now only borrow a maximum of $366,900, down from $511,100.

Mortgage Broker Melbourne What If We Finance can help

The above examples are an average home loan broker. What If We Finance, with access to over 2,000 home loan products and more than 42 lenders, can help you. Getting the right mortgage advice has always been more critical; the best place to start is with the best mortgage broker in Melbourne.

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