PLS EXPLAIN The RBA has held the cash rate once again. But what does it mean for Gen Z?

Yesterday afternoon, the RBA announced it would be holding the cash rate at 4.35% for the eighth time since early November 2023. Despite growing calls to lower the rate due to cost-of-living pressures, it’s clear the Reserve Bank is continuing to prioritise inflation concerns in its policymaking.

It comes to the disappointment of many, who placed idyllic hopes on the RBA to follow the US’ suit. Last week, the Central Bank decided to lower their interest rate by 50 basis points for the first time in over four years. Many regarded this as the marking of an international period of monetary policy easing for the first time since COVID. Nevertheless, to most, the decision comes to few people’s surprise.

With inflation still sitting at 3.8% (as of June 2024) and above the RBA’s target of 2-3%, it’s no surprise they’re holding firm. RBA Governor Michelle Bullock quashed hopes of any rate cuts earlier this month, signalling that while inflation has dropped from its COVID-era peak of 7.8% in December 2022, the Bank needs more proof of sustained improvement before slashing the cash rate.

What does this mean for Gen Z?

Monetary policy’s impact on Gen Z is often overlooked. It’s easy to dismiss these complex economic discussions when most young adults aren’t dealing with mortgages or major loans, but the RBA’s decisions affect the entire economy—including Gen Z. So let’s break down how this cash rate decision could impact you.

Rental prices

In short, a higher cash rate will typically put upwards pressure on rental prices. This is because high cash rates translates to higher interest rates, and this increases the amount of repayments homeowners need to make in order to service their mortgage. For those who own properties that they rent out, this will almost always result in a passed on cost to renters.

If you’ve noticed rent skyrocketing over the past two years, that’s because it has. Since May 2022, the cash rate has steadily risen from 0.25%, putting extra pressure on the housing market. So if you’re feeling the pinch more than ever, you’re not alone.

Home ownership hopes

In today’s economy, hopes for home ownership by Gen Z in the near future is a pipe dream at the best of times. Right now, it’s even less achievable. Even if you take property market considerations out of the picture, securing a mortgage and having the capacity to make repayments is incredibly expensive right now.

In fact, it hasn’t been this expensive to take out a mortgage since 2011, when Australia was in the midst of their post-GFC mining boom. So unless you’re on a fuck-off salary, or have the bank of mum and dad to help out, chances are it’s not happening rn.

Cost of living

Now before we host a pity party, pause right where you are. Because it’s not all doom and gloom. It would be misleading (and economically incorrect) to tell you that a higher cash rate will always result in worse financial outcomes for Gen Z. At the end of the day, the RBA has maintained the rate at 4.35% for a reason, and that reason is inflation.

Post-pandemic, the entire world has been grappling with inflation, and the RBA is working hard to rein it in before we all get too comfortable. It’s inflation—not the cash rate—that’s the real culprit behind the cost-of-living crisis. It’s why your oat latte costs $7 these days. And the sooner inflation comes down to the 2-3% target, the better off we’ll all be.

In fact, it appears the light at the end of the tunnel might be closer than we originally thought. The US, UK and other European countries cutting their cash rates is a good sign of what’s to come here. The RBA’s high cash rate has already slashed inflation by 4% in under two years, so it shouldn’t be long before we start seeing relief.

HECS indexation

If you’re screaming internally about the lack of a dent you’re making in your HECS debt, trust me when I say you’re not alone. Because of inflation, some Gen Zs are actually going backwards in their loan, despite making all their repayments. And while the government’s new process for indexation will definitely make things a bit nicer, the best bet we all have moving forward is praying for lower inflation.

In other words, lower inflation means lower repayments. That will feel really great after a period of being smacked by enormous sums on what should otherwise be an “interest-free loan”.

The moral of the story

If you’ve learned anything from this article, let it be this: the RBA’s cash rate does impact you, and it’s worth understanding why. While higher rates may suck for renters and homebuyers, they’re helping to curb inflation, which is the real villain in the cost-of-living crisis.

At the end of the day, everything is a balancing act. For now, all we can do is cross our fingers and hope the post-COVID economic fallout is nearly behind us. Personally, I can’t wait for the day when “disposable income” becomes a thing again.