The Reserve Bank of Australia has lifted interest rates by another 25 basis points, taking the official cash rate to 4.35% and adding further pressure to households already struggling with rising living costs. For mortgage holders, particularly those coming off fixed-rate loans, the increase continues what has become a fairly relentless cycle of repayment stress. While the RBA is still focused on containing inflation, many Australians are beginning to question how much further households can realistically stretch before consumer spending starts slowing more noticeably.
Interestingly though, fuel pricing across Australia has remained relatively subdued for now. Given the level of instability still sitting in the Middle East, particularly around the Strait of Hormuz, many expected petrol prices to push significantly higher already. Instead, markets appear to be balancing weaker global demand against ongoing supply concerns, helping keep prices steadier than anticipated. Whether that calm holds is another question entirely.
At the same time, Australia’s construction industry is facing one of its biggest modern challenges. Under the National Housing Accord, the country is aiming to build 1.2 million new homes over the next five years. On paper, the target sounds ambitious but achievable. On the ground however, many builders are describing current conditions as some of the worst they have ever seen.
Labour shortages, elevated material costs, insurance increases, tighter lending conditions and thinner profit margins are all combining to create enormous pressure across the building sector. Higher interest rates also reduce borrowing capacity for buyers, which can weaken demand at the exact time the government is trying to encourage large-scale construction activity. It creates a fairly difficult balancing act, where Australia desperately needs more housing supply, but many in the industry are struggling just to maintain stability.
Attention is also beginning to shift toward next week’s Federal Budget. Cost of living pressures are now touching almost every part of the economy, from groceries and rent through to insurance, electricity and finance costs. Both households and businesses will be watching closely to see whether meaningful relief measures are introduced, or whether the budget instead focuses more heavily on balancing government spending and inflation control. We’ll be covering the budget in more detail next week once the full measures are released.
Overseas, the ceasefire between the United States and Iran continues to look fragile. While large-scale escalation has paused for the moment, low-level conflict and military positioning continue around the Strait of Hormuz. For global markets, the concern remains less about direct warfare itself and more about the potential disruption to shipping routes and energy supply. Roughly a fifth of the world’s oil passes through the region, meaning even smaller disruptions can quickly flow through to fuel, transport and manufacturing costs worldwide.
Gold has remained relatively steady during the week, continuing to attract underlying support as investors weigh rising debt costs, geopolitical uncertainty and broader concerns around long-term inflation pressures.
A “basis point” is simply a financial term used to describe very small percentage changes, most commonly interest rates. One basis point equals 0.01%. So when the RBA lifts rates by 25 basis points, it means rates have increased by 0.25%. For example: 4.10% becomes 4.35% 4.35% becomes 4.60% The term is mainly used because it avoids confusion when discussing percentage movements in finance and lending markets.
