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With the federal budget announcement just around the corner, this week has been notably eventful.
The Reserve Bank of Australia (RBA) added to the financial strain on households by raising interest rates for the third time this year. Meanwhile, market instability persisted due to conflicting signals about 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, effectively undoing the three rate cuts that took place last year.
Promptly following this decision, all four major banks informed their customers that they would implement the full rate increase starting May 15.
As a result, those with an average $600,000 home loan will see their monthly payments rise by $91, while a $1 million loan will incur an additional $152 monthly. Since February, this amounts to a total increase of $272 and $453 per month for these respective loan amounts.
RBA’s inflation headache
The central bank also updated its inflation forecast — and it expects the situation to get worse before it gets better.
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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