The Reserve Bank of Australia (RBA) increased the cash rate by another 50 basis points last Tuesday 6 September 2022. This is the fifth increase and has taken the cash rate from 0.10 per cent in April to 2.35 per cent today.  

Will interest rates increase any further?  

It is almost certain that more interest rate rises are on the way. The RBA said it “expects to increase interest rates further over the months ahead.”  

The RBA has also stated that “the size and timing of future interest rate increases will be guided by the incoming data” and that “it is not on a pre-set path.” In other words, the RBA will only increase interest rates again if it makes sense. 

How high will interest rates go? 

Financial markets pricing suggests that the cash rate will reach a peak of about 3.85 per cent in July or August of 2023, 150 basis points higher than today.  

This would bring the standard variable mortgage interest rate up to 8.3 per cent (from the 4.52 per cent low reached during the pandemic).  

It is worth noting that the financial markets can get it wrong – over recent weeks, predictions about interest rates have moved around. 

What could put a stop to interest rate rises? 

Ultimately, the RBA is raising interest rates because inflation has exceeded its 2 to 3 per cent target. Inflation reached 6.1 per cent in June 2022, and the RBA expects it to peak at around 8 per cent by the end of the year. It is on this basis that further interest rate increases are expected. However, several scenarios could bring inflation down much more quickly.  

These include: 

• An unexpected surge in migrant workers arriving in Australia over the next six months. 
• A collapse in global energy and commodity prices. 
• A very sharp appreciation in the Australian dollar’s exchange rate versus major world currencies. 
• Big falls in demand across the world economy, possibly resulting from shocks to China’s economy. 

To see the most recent statement released by the RBA, click here.