Central Banks are supposed to inspire confidence in the economy by keeping inflation low and stable. The action of the Reserve Bank of Australia (“RBA”) yesterday is the strongest indication that the Central Bank has suffered a hair-raising loss of control.

The RBA’s decision to hike the cash rate by 0.5% to 0.85%pa is evidence that the Board has finally recognised they are well behind the curve. Interest rates are now being raised to appropriate levels for an economy registering 5.1% inflation (which is rising quickly) and an unemployment rate of 3.9%.

What is most disappointing is that the RBA has been so slow to recognise the serious inflation problem in the Australian economy and is now causing shockwaves in financial markets as it attempts to restore its credibility. Put simply, the RBA always had the tools to stop inflation early but failed to use them in time.

What does all of this mean to the ordinary person? On a positive note, investors (especially retirees) will earn more income on term deposits and floating rate investments. However, this will be offset by much higher home loan interest rates which in turn, will have an impact on loan servicing and affordability.

At Convergence Wealth, we have a relationship with most of the Banks and numerous non-bank financial institutions in Australia. We have an intricate knowledge of how the plethora of lending products in the market work and what would suit a client’s risk profile and borrowing requirements.

Please reach out to us if you would like a complimentary and unbiased opinion on your current home loan arrangements. There is no better time to keep your current lender honest!

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