The Reserve Bank has increased the official cash rate from 0.1 to 0.35 per cent, the first rise in more than a decade.
While it’s the beginning of a worrying trend for homeowners, there’s an upside for many older Australians.
Dr Lee Smales is an associate professor in finance at the University of WA who says the RBA’s decision is primarily aimed at tackling rising inflation rates.
“In the last few months, as the country has recovered from the pandemic, there’s been various pressures within the economy and inflation has surged,” he says.
Dr Smales says changing the cash rate is one of the main ways the RBA combats inflation.
“When interest rates go up, it becomes more expensive for households to borrow; there’s more of an incentive to save rather than to spend. When the cash rate is close to zero, there’s pretty much no point in leaving your cash in the bank-you may as well go out and spend it,” he says.
He says the main beneficiaries of the rate rise will be those with more savings in the bank.
“The people who are going to benefit are those who have savings, pensioners for instance who might have cash in their bank that might have been earning little interest for the last few years, they are going to benefit from this,” he says.
Julie lives in Manning and believes pensioners and older Australians who are more reliant on their savings for income are deserving of the benefits.
“They’ve worked hard to get their money, so I think they do deserve something. It’s so hard for young people these days, but when we were young we had very high interest rates and we all managed,” she says.
Brian Graham is also a senior from Manning who says the uncertainty around house prices and loans means many have little choice but to wait.
“People who haven’t bought a house are probably better off renting for the time being and waiting until prices stop going up. There’s no doubt about that, but anyone who can say when is a fool. How do we tell what’s going to happen?” he says.
Professor Jakob Madsen is a macroeconomics professor at the University of Western Australia.
He says while savers benefit, the burdens of the rate increase are disproportionately felt by lower income Australians.
“The winner is clearly savers, but if you’re going through population groups clearly it’s the rich who are the net savers. The poor, and the young class who just mortgaged their house and so on, they’re clearly the losers – those who are credit hungry,” he says.
Sara Ascencio and Lischa Fuller are university students at Curtin.
They say they aren’t optimistic about their future prospects for finding housing.
“I was looking at houses because I’m planning on moving out soon, but as one person I think most rent now is like $450 a week and I just feel like that’s so much. I do feel a bit pressured into ‘oh, now I need to save a lot of money’,” Lischa says.
Sara spoke about the stress of balancing work and study commitments with housing finances.
“If you’re studying tertiary education like we are, there’s already a lot of stress in coming a lot of days of the week to study, and on top of that if you have a part-time job, having to pay rent just to stay at an occupation, that would put a lot of stress on someone,” she says.
Dr Smales says the cash rate will likely keep rising.
“For sure the cash rate is going to continue going up for a while. Inflation is much higher than the target, and it’s going to take some time to get back under control,” he says.
On Wednesday, Reserve Bank Governor Philip Lowe confirmed the RBA will continue to adjust the cash rate to respond to inflation for the foreseeable future.
“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” he said.