As the federal budget announcement approaches, it’s been a whirlwind of economic developments this week.
The Reserve Bank of Australia (RBA) has intensified the strain on household finances by raising interest rates for the third time this year. This decision comes amidst ongoing market turbulence, fueled by uncertain signals related to the ongoing conflict in the Middle East.
Three in a row — and more to come?
This week, the RBA opted to increase the cash rate by 0.25 percentage points, bringing it to 4.35 percent. This move effectively reverses the trio of rate cuts implemented last year.
In response, Australia’s four major banks wasted no time informing customers that they would fully pass on this rate hike starting May 15.
Consequently, homeowners with an average loan of $600,000 will see their monthly payments rise by $91, and those with a $1 million loan will experience a $152 increase. Since February, this represents a cumulative monthly hike of $272 and $453, respectively.
RBA’s inflation headache
Additionally, the central bank has revised its inflation forecast, predicting that economic conditions may deteriorate further before showing signs of improvement.
Previously, the central bank had forecast in May 2025 that trimmed mean inflation — it’s preferred measure that strips out volatile items — would stay within its target band at 2.6 per cent through to 2027.
But what actually happened was underlying inflation rose to 3.3 per cent as the war in the Middle East erupted in late February.
Now, the RBA expects trimmed mean inflation to peak at 3.8 per cent in June and stay above 3 per cent until coming within its 2-3 per cent target by the end of next year.
That’s seen some economists shift their forecasts: NAB expects another rate rise in June, while Westpac has adjusted its forecast from two more hikes in June and August, to August and September.
Australian dollar’s strength
The Australian dollar hit a four-year high on Thursday, passing 72.47 US cents — which was last reached in April 2022.
This week’s rate hike, and the prospect of more, consolidated the local currency’s performance. Hopes of a peace deal between the United States and Iran also helped push the Australian dollar higher.
Angus Geddes, chief investment officer at Fat Prophets, told SBS On The Money that those hopes have pushed up commodity prices, like iron ore, further supporting the Australian dollar.
However, that was short-lived as tensions renewed on Friday, and the dollar retreated from those highs, though it remains above 72 US cents.
Fuel prices continue to fall — for now
Petrol prices continued to fall last week, according to the Australian Institute of Petroleum.
It found national average price for unleaded dropped 8.9 cents a litre to 183.4 cents. That’s almost below where prices were before the war started.
Meanwhile, the national average retail price for diesel fell to 254.3 cents per litre — a sharp drop of 20.7 cents.
Those price falls include the fuel excise cut, scheduled to end on 30 June. It is unclear whether it will be extended.
That’s this week’s On the Money wrap. Prefer to listen? The On the Money podcast breaks down the latest every weekday. You can tune in here or wherever you get your podcasts.
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