Hold or hike? The move that could make or break buyers

With just one week until the next cash rate decision, borrowers are holding their breath to see whether another hike is coming or if they’ll finally catch a bit of relief, with one expert suggesting a hold could be on the cards.

As the next cash rate decision nears, the Reserve Bank of Australia (RBA) faces a high-stakes balancing act, weighing tomorrow’s consumer price index (CPI) figures, the upcoming Federal Budget on 12 May, and the conflict in the Middle East.

While many economists and the big four banks are tipping another rate hike, Compare the Market’s economic director, David Koch, said the RBA has plenty to weigh up and should consider throwing a lifeline to borrowers.

“Higher petrol prices had already delivered a financial impact similar to an official interest rate hike.”

“Because that interest rate increase – or the equivalent – has already come through in higher petrol prices, I reckon they might hold the line.”

“It’s a big call, but the week after is the Federal Budget, and they don’t know what’s coming there. They might think, ‘okay, let’s give ourselves some breathing space, see if the Middle East crisis resolves itself, and see what’s in the Federal Budget’.”

He said that before making its decision, the RBA committee will consider whether oil prices remain elevated for longer, noting that if tensions in the Middle East ease, prices could fall significantly, removing a key driver of inflation.

Similarly, Koch said the RBA will need to take Australian households into consideration as consumer and business confidence has fallen.

“Consumers cutting their spending is bad for the economy because small businesses start to suffer,” Koch said.

“And bosses not having confidence is bad for the economy too, because they won’t invest and they won’t hire people.”

According to the data, another rate hike in May could see home owners paying hundreds more each month, depending on their loan size, with three 0.25 per cent increases potentially adding about $358 a month on a $750,000 loan and around $478 on a $1 million loan.

As the future remains uncertain, Koch urged Australians to claw back cash where they could.

He said households should look at where they can make savings and effectively create their own “rate cut” by reviewing their budgets.

This includes ensuring their home loan suits their circumstances and comparing key expenses, such as home and contents insurance, private health cover, car insurance, and energy bills, to see if switching providers could deliver savings.

“It is the time to start plugging all of those financial leaks that are coming out of your household budget to see if you can get better deals,” Koch concluded.

This article was first published on Smart Property Investment, a sister-brand of Property Buzz.