On 3 May 2022 the Reserve Bank of Australia (RBA) lifted the cash rate for the first time in nearly 12 years from 0.1% to 0.35%. The cash rate was dropped to these levels in 2020 to deal with what was expected to be one of the most severe economic slowdowns in history. To put the severity into context, the RBA considered the pandemic would cause unemployment to exceed 10% and deflation i.e. negative inflation would persist.

Today’s reality couldn’t be more different - we have record low unemployment levels and the current 5.1% inflation is well above the RBA target range of 2% to 3%.

The key question being asked by mortgage holders and the investment community is just how high will interest rates need to get to before the RBA is satisfied inflation is back within the acceptable band of 2% to 3%? Ultimately no one definitively knows, but as mentioned last year, the interest rate markets have been far better predicators of future rate moves than the RBA itself.



What are markets predicting currently? By December 2022 the cash rate is expected to be about 2.5% and by June 2023 it will peak somewhere close to 3.25%.

Whilst most borrowers would prefer to have low rates forever, savers have the opposing view. As a general rule, the cash rate should not be below the inflation rate for an extended period of time. Normalising this imbalance is a healthy sign our economy is recovering.