‘Expected to bite’: How the RBA’s interest rate rise will impact over 60s

The Reserve Bank of Australia (RBA) has raised the nation’s official cash rate target yet again, by another 50 basis points for the third month in a row to 1.35 per cent, the highest level since May 2019.

The RBA also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.25 per cent.

RBA Governor Philip Lowe said the decision to raise rates on Tuesday, July 5 demonstrates that “the Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

“Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed,” he said.

“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.

“Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.

“Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year. As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services. Medium-term inflation expectations remain well anchored and it is important that this remains the case. A full set of updated forecasts will be published next month following the release of the June quarter CPI.”

At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 1.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.25 per cent – https://t.co/QwoeT6U8OD

— RBA (@RBAInfo) July 5, 2022

Despite the global and domestic factors dictating the need for the rise, Treasurer Jim Chalmers claimed the increase “is very challenging news for hardworking Australians already doing it tough.”

“Rates were expected to rise, and they’re expected to bite,” he said.

“While the trajectory of rising interest rates was set before the election, this rate rise is another blow to workers and families already under significant cost of living pressure.

“Today’s 50 basis point rate rise comes at a time when a significant number of Australians are confronted by yet another large-scale natural disaster, which will only add to these ongoing challenges.”

Chalmers said the Albanese government is working to help limit the impact of rate rises but stresses that “we expect it to get worse before it gets better” given “the Reserve Bank has flagged further rate rises.”

“We’ve been upfront about the combination of challenges in our economy and their impact on the Budget,” he said.

“That’s why we’re working hard to deliver on our commitments to boost the capacity of the economy and reduce the cost of living, and why we fought for an increase to this year’s minimum wage for 2.8 million Australians.”

There are no shortages of challenges in the Australian economy right now and today’s decision by the RBA to raise interest rates will put even more pressure on families. I am confident we can emerge stronger from the difficulties that we are facing if we work together. #auspol pic.twitter.com/BSq2nyRMBk

— Jim Chalmers MP (@JEChalmers) July 5, 2022

Despite all the doom and gloom being bandied around regarding the increase, REA Group senior economist Eleanor Creagh told Newscorp that retirees and those who have substantial savings squirrelled away could stand to benefit from the RBA’s decision.

“With interest rates rising, retirees and savers can benefit from increased return on their savings,” she said.

Financial wizard, Noel Whittaker was more conservative in his assessment of the rate rise, telling Starts at 60: “They [seniors] are going to get a little bit more in their term deposits, which is bugger all. If you’ve got a couple of hundred grand it’s only going to be so small.”

“I guess the long term thing is if it gets inflation down then the cost of living won’t keep going up.

“Inflation is a loss of purchasing power of your money and that’s one of the biggest things that affects seniors, if it works it’ll be good.”

A decrease in the rising cost of living will be welcome news to pensioners after recent data from the Australian Bureau of Statistics (ABS) revealed that older Australians are suffering the most from the rising cost of living, with pensioners experiencing an annual household living cost of 4.9 per cent.

Head of Prices Statistics at the ABS Michelle Marquardt said the main culprit affecting older Australians is the increase in grocery prices, but household costs also played a large role.

“These households were also more affected by increases in housing costs, as they have relatively higher expenditure levels on utilities, maintenance and repair, and property rates,” Marquardt said.

Whittaker also highlighted that the rate rise could impact those over 60 who are looking to downsize.

“Rates going up are bad for property prices, so if they are downsizing then it’s a negative to downsizing because the house will be worth less,” he said.

Whittaker also pointed out that with the stock market fall everyone is worried about their superannuation but people have to understand that super is a long-term thing” before reassuring those concerned about the increase that “it’s natural to worry but you don’t want to worry.”