In the November interest rate decision from the RBA, the board decided to increase the cash rate by 25 basis points to 2.85 per cent.

In a statement, RBA governor Philip Lowe said that, as is the case in most countries, inflation in Australia is “too high”.

“Over the year to September, the CPI inflation rate was 7.3 per cent, the highest it has been in more than three decades. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply,” he said. 

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The bank’s central forecast is for CPI inflation to be around 4¾ per cent over 2023 and a little above 3 per cent over 2024.”

“The Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade,” Dr Lowe continued.

“Economic growth is expected to moderate over the year ahead as the global economy slows, the bounce-back in spending on services runs its course, and growth in household consumption slows due to tighter financial conditions. The bank’s central forecast for GDP growth has been revised down a little, with growth of around 3 per cent expected this year and 1½ per cent in 2023 and 2024.”

In conversation with Lawyers Weekly, Legal Home Loans director of sales Cullen Haynes said that his firm expects that banks will pass on today’s increase to borrowers within the week.

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“Mortgage holders locked into historically low fixed rates should be aware that there will be a significant increase in repayments when their fixed term ends, which they may want to start budgeting ahead of time for,” he said.

“Anyone concerned about rising mortgage repayments and impact on household budgets should speak to their bank or broker about the best structure suited to their needs as soon as possible.”

For those seeking new loans, Mr Haynes went on, borrowing capacity will be decreased.

“As an example, a family earning $200,000 per annum can now borrow approximately $277,300 less than they could in April 2022. Today’s increase will impact this further,” he warned.

“Buyers with existing pre-approval are advised to speak with their bank or broker to understand what today’s rate rise means for their borrowing capacity before making offers, as chances are it will be decreased.”

However, Mr Haynes stressed, it is not all bad news.

“For those in a position to purchase, particularly first home buyers, this environment can present a great opportunity with less buying competition and property prices coming down,” he said.