Why are interest rates rising and when will they fall again?

The Reserve Bank of Australia has put up interest rates as it looks to grapple soaring inflation by making it more expensive to borrow and more rewarding to save money.Interest rate rises may be good for savers, but for borrowers and mortgage holders, not so much.And even then, banks are often much quicker about applying interest rate hikes to mortgage repayments than rewarding savers by doing the same on their saving accounts.

There could be more bad news for mortgage payers as The Reserve Bank of Australia (RBA) announced it has increased interest rates to their highest level in nearly three decades. Homeowners have been hit with another super-sized interest rate from the Reserve Bank of Australia meaning they will fork out hundreds more on repayments.

The decision to increase rates by 0.5 per cent pushes the cash rate to 1.85 per cent.

It’s the fourth time in as many months that interest rates have surged, after the first increase occurred in May which saw rates rise to 0.35 per cent and then to 0.85 per cent in June, while in July rates were pushed to 1.35 per cent.

The August hike won’t be the last, with experts predicting interest rates to 2 percent by the end of the year.

What are the interest rates?

The interest rate is the amount charged by a lender to a borrower and is expressed as a percentage of the principal—the amount provided. The annual percentage rate is the term used to describe the interest rate on loan (APR).

The greater the interest rate, the higher the cost of borrowing money.

Why is the Reserve Bank Of Australia putting up interest rates?

Interest rate increases are intended to slow inflation, which is an economic term for the rate at which goods prices are rising.

The higher the inflation rate, the less your purchasing power will be.

The main reason for the latest interest rate rising RBA says: 'Today's increase in interest rates is a further step in the normalisation of monetary conditions in Australia. The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy.

However, the global relaxation of coronavirus regulations, along with the conflict in Ukraine, has caused global inflation to skyrocket is one of the main reason for rising interest rates in Australia.

When will interest rates go down?

Experts estimate that rates will climb in September, November, and February, with a possible respite in between because inflation should have begun to decline significantly by that point.

According to some economists, interest rates in Australia could reach up to 2% -2.23 % by early next year.

Once inflation has stalled and begun to fall, there may be room to cut the rate.

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