Interest Rate Increases

What is happening with interest rates?

Since May 2022 the Reserve Bank of Australia, whom is responsible for adjusting the overnight funds rate, that directly relates to the interest rates charged on money between banks and to the general public as individuals and businesses, has decided to increase the rate on funds for 9 meetings in a row.

It is presently March 2023, which would be 10 months, but there is no meeting held in January, which is finally a positive thing coming from a department being closed over Christmas for those that are impacted by it’s decisions. Prior to the rate increase in May 2022, the most recent increase in interest rates in Australia wasn’t since November 2010.

Is this the fastest increase of interest rates?

There is no doubt that the recent streak of interest rate rises is the longest and most consecutive in the recorded history of the Reserve Bank of Australia, 9 out of 9 meetings have resulted in a rise and the common expectation is that 1 to 2 more are expected before the streak comes to an end. Prior to this streak, the longest consecutive change in interest rates was 5 meetings in a row starting from September 2008, of which were all reducing interest rates. This was in response to the Global Financial Crisis as emphasised by the meeting’s opening statement; “Conditions in international financial markets took a significant turn for the worse in September. Large-scale financial failures in several major countries were accompanied by serious dislocation in interbank markets and heightened instability in other markets, including sharp falls in share prices”.

However, whether the 2022 increases are the fastest increase of interest rates depends on how you calculate it. In August 1994 the cash rate was increased by 0.75 points, followed by a further 1.00 in October and another 1.00 in December. This was an increase of 2.75 in 5 months. Many comparisons were circling media and interest sources of how the 2022 changes were the highest since then, as over the same period of 5 months we saw an increase of 2.25 in 2022. It is hard to take any appreciation from those facts now that we have witnessed a further 5 rate rises amounting to an additional 1.25 points. The streak is now up to a 3.5 increase and counting.

Are the rate rises worse than 1994?

Prior to May 2022, the cash rate was recorded as 0.10, the lowest in Australia’s history, 5 months later the rate reached 2.35. This is an increase of 2250%. In 1994, the interest rates increased from 4.75 to 7.5, or 58% higher than what they were before the rises. I would prefer a 58% increase in something that reduces my disposable income compared to a 2250% increase. Certainly my interest rate has luckily not increased on my mortgage by 2250% but, the level something is counted from is as important as where it ends.