RBA hands down March decision amid growing uncertainty in Ukraine

The Reserve Bank of Australia.

The Reserve Bank of Australia left the cash rate at 0.10% at its second policy meeting of the year, while admitting that ongoing developments in Eastern Europe are a new source of uncertainty.

In his post-meeting statement, RBA governor Philip Lowe said the Board was willing to look past surging inflation, at least until unemployment has been driven down low enough to generate wages growth.

“There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems,” he said. 

“At the same time, wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target.”

Wages grew 2.3% in the last quarter — an improved result on previous quarters but still shy of the RBA’s goal of 3% or higher.

The RBA is also mindful of the historically high levels of debt taken on by Australians, which could see many households pushed to the brink if interest rates are raised too quickly.

That’s not to mention the one segment of the market that would have to get accustomed to higher interest rates before others — those nearing the end of their fixed rate terms.

The RBA’s peers across the Tasman are less inclined to be patient. At its February meeting, the Reserve Bank of New Zealand raised the cash rate by 25 basis points to 1.00%.

RELATED: Fixed rate mortgages continue to soar

Economists polled by Reuters believe the RBA will be forced to follow suit in the third quarter of this year, with the cash rate likely to be sitting at 0.5% by year’s end and 1.25% by the end of 2023.

Former RBA board member Warwick McKibbin has also pencilled in several rate hikes this year, which he deems necessary to combat surging oil prices caused by the Russia-Ukraine crisis.

Besides increased energy costs, Westpac chief economist Bill Evans believes the unfolding crisis — and the sanctions levelled against Russia by the international community — will not affect the Board’s outlook on the Australian economy.

“While there certainly will be significant short term volatility, comfort that the crisis is unlikely to severely affect global supplies of energy and therefore add further upward pressure on inflation is likely to see equity markets settle back,” he said.

Where do mortgage rates currently sit?

Since the start of February, 72 of the 89 home loan providers tracked by Mozo have increased fixed rates at least once, bringing the average 3-year term among providers we track to 3.26% p.a.

Mozo spokesperson Tom Godfrey said while fixed rates had overtaken variable rates as the more expensive of the two, they could still represent better value in the coming months. 

“There is little doubt that variable interest rates will increase before long and return to their pre-pandemic levels, which could add thousands of dollars a year to the average home loan repayments,” he said.

Among fixed rate loans in the Mozo database, it’s smaller lenders that tend to stand out, with Illawarra Credit Union offering 2.40% p.a. (3.82% p.a. comparison rate*), Australian Mutual Bank offering 2.48% p.a. (2.66% p.a. comparison rate*), and Homeloans360 offering 2.49% p.a. (2.05% p.a. comparison rate*).

Analysis by Mozo found that borrowers could save $7,160 by fixing their loan for three years at the current leading rate of 2.40% p.a. (3.82% p.a. comparison rate*), instead of sticking with the leading variable rates and enduring a potential 1.5% rate hike.

For more information on mortgage and lending trends, visit our home loans statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Read last month's Reserve Bank interest rates update.

Home loan comparisons on Mozo - last updated 24 April 2024

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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