RBA Interest Rate History and Forecast

The Reserve Bank of Australia (RBA) is the central bank of Australia. Their role in the Australian economy is to issue the Australian currency and conduct and change any of the monetary policies in Australia. One of the policies they review every year (11 times a year, to be precise) is the interest rates.

Specifically, they make decisions surrounding the official cash rate, which is the interest rate on overnight unsecured loans between Australian banks. The cash rate affects multiple interest rates in Australia. So if you’re an expat, you need to know the past trends of the RBA cash rates and their potential future to decide on a home loan.

Read on for the current Reserve Bank of Australia interest rates, the past trends, and the potential future interest rates.

What is the Cash Rate and How Does it Impact Interest Rates?

The cash rate is the interest rate the RBA charges banks for overnight loans between themselves. This influences all interest rates in Australia. When the RBA raises or lowers the cash rate, variable mortgage and business loan rates will typically move in the same direction.

Changes to the cash rate aim to encourage spending and investment in the economy. Lower rates make borrowing cheaper, stimulating growth. Higher rates make borrowing more expensive, slowing inflation.

The current cash rate in Australia is 4.35% as of December 2023. This is up from a record low of 0.10% during the COVID-19 pandemic.

For example, the variable housing rate on outstanding loans was 5.51% as of December 2023. The rate on new loans was 6.00%. In January 2022, these rates were 2.94% for outstanding and 2.52% for new.

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Current Variable Interest Rates in Australia

With the cash rate now at 4.35%, various interest rates have increased. Here are the key variable rates across different lending sectors based on RBA’s Lenders’ Interest Rates Statistics as of December 2023.

Housing Interest Rates

The average variable rate on outstanding mortgages is 5.51% while the variable rate for new mortgages is 6.00%. Variable rates for interest-only home loans are higher at 6.77%. Fixed rate mortgages don’t fluctuate with the cash rate in the short term, but lenders will eventually pass on the higher funding costs from rate hikes.

Business Lending Rates

Business investment is advisable for anyone wanting to start any business in Australia. Here are the interest rates for all business sizes of Australia and what kind of downward trends they are on.

  • Small Businesses: Business variable interest rates currently sit higher than mortgage rates, but vary significantly depending on loan size. Small businesses with loans up to $500k pay an average outstanding variable rate of 6.89% while the variable rate for new loans is 7.14%. This is because smaller firms often pose higher credit risks.
  • Medium Businesses: For medium-sized enterprises, average variable rates on lending between $500k to $2 million are lower at 6.08%. The variable rate for new loans for medium businesses is 6.19%. Mid-market firms represent lower credit risks.
  • Large Businesses: Finally, large corporate variable rates for borrowing over $2 million average 5.59%, the lowest business rates. However, new loans have a variable rate of 5.38% for large businesses. Big firms pose the least credit risk.

History of RBA Interest Rate Movements

The RBA has maintained an inflation target of 2-3% on average over time. Interest rate decisions aim to keep inflation within this band.

Here is a timeline of key rate changes:

  • November 2023: The cash rate rose by 0.25% to 4.35% after a four-month pause.
  • June 2023: The cash rate rose to 4.10% and remained steady.
  • February 2023: The cash rate rose to 3.35% after gradually increasing from 0.85% in July 2022 to the start of 2023.
  • July 2022: The cash rate rose again by 0.50% to 1.35% in response to a spike in inflation to 5.1%.
  • May 2022: The cash rate finally rose 0.25% to 0.35%, the first rate rise since November 2020. Rising inflation triggered the change.
  • November 2020: The cash rate fell to a record low of 0.10% as the recession deepened. Housing and business borrowing costs hit all-time lows.
  • March 2020: The cash rate was cut to 0.50%, then further down to 0.25% as COVID-19 hit. This supported the economy during lockdowns.
  • 2016-2019: The cash rate slowly declined from 1.5% to 0.75% as wage growth and inflation remained weak.
  • 2008-2016: The cash rate fell dramatically to 1.50% due to the global financial crisis, sending mortgage rates down.
  • 1996-2008: The cash rate further dropped to 4.25% as the economy boomed and mortgage rates increased.
  • 1990-1996: The cash rate dropped down to 7.50% with some fluctuations on the way.
  • 1960-1990: The cash rate gradually rose up to a whopping 17.50%!
  • 1960: The initial cash rate was set at 2.5%.
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What is the RBA Interest Rate Forecast?

In December 2023, the RBA cash rate remained steady at 4.35%. However, rates are forecasted to continue rising to 4.6% in 2024. This indicates further rises are likely this year and next.

The RBA wants to return inflation to the 2-3% target range. Housing and business borrowing rates are expected to increase in line with the cash rate rises. Economists predict:

  • Variable mortgage rates hit 6% in mid-2023 based on a 4.10% cash rate in May, and remained unchanged until November 2023. Rates are likely to continue increasing.
  • Small business variable rates may continue rising to 8% or more over the next year.
  • Medium and large business rates have climbed above 5-6% in the last quarter of 2023.
  • Personal loans and credit cards will become more expensive.

Impacts of Rising Interest Rates

Higher interest rates have wide-ranging impacts across Australia:

  • Mortgage holders will face increased repayment costs, affecting household budgets.
  • Business borrowing will become more costly, potentially slowing investment.
  • Consumer spending may decline as personal loans and credit cards require higher repayments.
  • Economic growth could slow as borrowing and activity is reined in.
  • The Australian dollar may strengthen as higher rates attract foreign capital.
  • House price growth is expected to slow but no major crash is forecast.
  • Share markets may see increased volatility. Some business profits could be squeezed.
  • Unemployment may edge up if conditions weaken but is still trending low.

On the positive side, rising rates aim to bring inflation back down and prevent it becoming entrenched. This provides greater economic stability.

Who Sets Australian Interest Rates?

The Reserve Bank of Australia sets the nation’s interest rates through adjustments to the cash rate at its monthly board meetings.

The board is made up of senior RBA leaders like the Governor, Deputy Governor, Treasury Secretary and six independent experts from sectors like business, academia and farming.

They assess economic data and make rate decisions to meet the RBA’s core objectives of:

  • Maintaining inflation within 2-3% on average over time
  • Ensuring full employment where possible
  • Contributing to Australia’s economic prosperity and welfare

The board analyses factors like GDP growth, inflation, unemployment, wages and household spending when setting rates. Their decisions impact the whole economy.

RBA Interest Rates: Final Summary

After reaching historic lows during COVID-19, Australian interest rates have risen significantly in 2023 as inflation has climbed. The RBA decided to leave the cash rate unchanged at 4.35% in December 2023.

Variable housing and business lending rates have followed upwards in response. Fixed mortgage rates should also continue rising over time. These increases aim to slow borrowing and spending, helping reduce high inflation.

For Australian expats living overseas and overseas borrowers in Australia, the rising interest rates mean mortgage and loan repayments will become more expensive as rates climb higher in 2023-2024. This could impact disposable income and budgets.

However, the benefit is that inflation is expected to fall back within the RBA’s target band over time, providing greater economic stability. Understanding the outlook for Australian rates can help expats and foreign borrowers plan finances and make prudent borrowing decisions.

Get Expert Mortgage Rate Advice for Expats

If you’re an expat or foreign borrower considering a mortgage in Australia, get in touch with our expert team at Odin Mortgage. Our brokers can provide advice and solutions tailored to your unique situation and needs.

As specialists in expat and overseas borrower home loans, Odin Mortgage stays up to date with the latest RBA cash rate changes and interest rate movements. We help you secure the most competitive Australian mortgage rates and structure loans efficiently.

To discuss your Australian mortgage requirements, speak with one of our specialists today.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently Asked Questions

The RBA affects interest rates in Australia by setting the official cash rate at its monthly meetings. In December 2023, the RBA decided to maintain the cash rate at 4.35%, leaving variable housing and business lending rates unchanged.

The RBA raises rates when inflation is high and lowers rates when inflation is low.

The RBA holds eleven scheduled meetings each year on the first Tuesday of every month except January. In these meetings, the RBA Board decides on interest rates by setting the target for the cash rate.

They analyse economic factors like growth, inflation, unemployment and wages to guide rate decisions that aim to meet inflation goals.

The RBA typically increases interest rates when inflation is above the 2-3% target band. Reasons inflation may rise include:

  • Increased consumer spending and business activity driving up overall demand
  • Rising wages growth pushing up costs for businesses
  • Supply constraints and production bottlenecks causing prices to increase
  • Higher import costs flowing through to Australian prices

By lifting rates, the RBA aims to reduce spending and slow inflation back down towards more acceptable levels over time.

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