The Official Cash Rate, a driver of home loan floating interest rates, was left unchanged today.
The statement that accompanies the announcement stated “As previously indicated, we expect to begin removing policy stimulus over the coming months, provided the economy continues to evolve as projected.”
Removing policy stimulus equals raising the official cash rate. Confirming expectations that home loan floating interest will begin to rise later this year.
The Reserve Bank also remarked that they may not have to raise the cash rate as high as what they have done in the past this time round. This is partly due to more home loans being on floating rates currently than in the recent past. So changes to the official cash rate, and hence home loan floating interest rates, have more of an immediate impact. The cash rate is used as a tool to control inflation and impacts on economic growth. Stamping on the accelerator, or lowering the cash rate, gives the economy a kick into gear. Similarly applying pressure to the brakes, or raising the cash rate, tends to pull the economy back.