RBA hikes interest rates to 4.6 per cent as Aussies cop $120 a month hit to fight inflation
The cash rate has now reached levels last seen in October 2011 with banks expected to quickly pass on the pain to borrowers.
The Reserve Bank of Australia (RBA) has lifted the cash rate to 4.6 per cent. Tuesday’s 0.25 basis point raise, up from 4.35 per cent, brings the cash rate to the highest level since late 2011.
The hike was widely expected by banks and economists – and was unanimous from the RBA Board – with some forecasting another to come before Christmas as the Reserve Bank tries to get tough on inflation after cutting rates last year. The move today puts Australia’s central bank cash rate at the second highest level in the developed world, only behind Iceland.
The RBA move pushes the average owner occupier home loan rate to around 6.5 per cent and will add about $120 to monthly repayments on an $800,000 loan.
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Why today’s interest rate hike is different
“Inflation remains elevated and some of the upside risks flagged in August are materialising,” the RBA said in its Monetary Policy Statement.
“The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts. AI-related demand is driving rapid growth in global prices for technology-related goods. And there remains pressure on domestic capacity.”
The RBA said it expects businesses to continue to pass on rising costs, adding to inflation in the near term.
“There are signs that growth in consumer spending is easing gradually as expected, although housing prices have fallen in most capital cities and new housing loans have declined noticeably.”
The target for inflation is between 2 and 3 per cent. But it currently sits at 3.5 per cent. Earlier this month RBA governor Michele Bullock acknowledged the stress higher interest rates puts on Australians, but affirmed that “reducing inflation is essential”.
More hikes might be needed: RBA
The statement from the bank continued to be hawkish, vowing to do more if needed.
“The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing,” it said.
“The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.”
According to Judo Bank Chief Economic Advisor and managing director of EQ Economics, Warren Hogan, the RBA’s current efforts to curb inflation haven’t been enough in the face of high government spending and a capacity constrained economy.
