RBA cracks the whip on rates
As the Melbourne Cup took centre stage today, the RBA cracked the monetary policy whip and lifted its official cash rate to 4.35% in response to stubborn inflation numbers.
In doing so, Australia’s Central Bank dampened the party mood for those enjoying a day off by hiking borrowing costs by another 0.25%.
And the RBA delivered on its warning last month that ‘some further tightening of policy may be required should inflation prove more persistent than expected.’
Persistent, it is. So, after a four-month lull in rises, it was no surprise when the increase was announced shortly before starter’s orders at Flemington. Those predicting that rates would stay on hold went down Without A Fight.
Australia’s Central Bank explained the increase, saying, ‘inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.’
The RBA added that while goods price inflation has eased further, ‘the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected.’
It added a cautionary note, saying that further increases to the rate, ‘will depend upon the data and the evolving assessment of risks.’
Today’s increase was largely expected. Following the latest ABS data, Australia’s major banks all tipped a hike today.
The reason being is that the headline consumer price index (CPI) saw a 1.2% increase in July-September, surpassing the 0.8% growth in the June quarter.
So, what does this rate rise mean? On a 0.25% increase, it’s estimated that borrowers should expect to be paying for their home loan another $76 per month for every $500,000 borrowed.
The RBA added that inflation has been closely monitored, and that ‘the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts.
‘The weight of this information suggests that the risk of inflation remaining higher for longer has increased.’
In fact, the International Monetary Fund (IMF) in its recent report on the Australian economy says inflation remains too high and that the RBA should look at further monetary tightening (though it didn’t specify by how much).
According to the IMF, inflation would only return to the RBA’s target band by Q1 2026. The RBA believes it can be done by late 2025 on its current projections.
The RBA’s final meeting in 2023 on monetary policy is December 5, with the next update not till February 6, 2024.
If you want to review your home loan arrangements, contact Mortgage Broker Group.
We can assist with tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household prices.
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