Mortgage-holders are in for more pain after the Reserve Bank of Australia (RBA) pulled the trigger on a widely-expected 25 basis point interest rate hike aimed at driving down stubbornly high inflation. The 13th hike in 18 months takes the official cash rate to a 12-year high of 4.35%.
Australian Associated Press (AAP) reports the 0.25 percentage point increase follows four months on hold at 4.1% as the RBA assessed the impact of its aggressive tightening cycle started last year, which involved 12 rate increases.
New RBA governor Michele Bullock delivered her first rate hike in a bid to rein in inflation, observing that inflation has passed its peak, but is still too high. “While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. The RBA board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,” she explained.
“Hot September quarter inflation data, particularly underlying measures; stronger than anticipated economic growth; resilience in the labour market;, and the recovery in home prices all factored into the November call. The weight of this information suggests that the risk of inflation remaining higher for longer has increased,” her statement read.
The possibility of more tightening remains although milder language was used in reference to future increases. “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” Ms. Bullock noted.
The RBA governor added that CPI inflation was now expected to be around 3.5% by the end of 2024 and at the top of the RBA’s target range of 2% to 3% by the end of 2025.
Treasurer Jim Chalmers admitted the latest increase to the cash rate would “make life harder for people who are already doing it tough. We are doing our bit as a government when it comes to addressing this inflation challenge, rolling out cost-of-living relief in a way that puts downward pressure on inflation rather than add to our inflation challenge.”
KPMG chief economist Dr. Brendan Rynne told AAP the increase to the cash rate was a reasonable move although there were some “persuasive arguments to have held off for longer. A softness is appearing in the labour market and is only likely to grow over the coming months; retail lending rates are rising due to increasing wholesale funding costs; and the immediate impact associated with any cash rate rise is going to be disproportionately felt by the poorest in society – the cohort that are least adding to inflationary pressures in Australia.”
Higher interest rates were going to do little or have no direct influence on demand for goods and services experiencing the fastest inflation, such as petrol, energy and rents, he predicted.
With Australian Associated Press