Inevitable tightening from the Reserve Bank has pushed Australia’s cash rate to a high not seen since the Global Financial Crisis.
A new cash rate of 4.85% was confirmed by the bank on Tuesday, with its nine monetary policy board members pushing through a fifth rate hike for the year.
Economists and markets had widely anticipated the tightening following recent appearances by Reserve Bank executives suggesting inflation is set to get worse before it gets better.
Latest data from the Australian Bureau of Statistics shows headline inflation rose 4.3% in the 12 months to September, the highest level since March.
Housing is continuing to weigh most heavily on headline inflation, rising by 5.2% in September. This includes new dwelling purchases, rents and costs like the price of utilities and home maintenance.
Underlying inflation was 3.6% in the 12 months to September, marking the sixth month without any improvement. The measure of this strips out the most volatile prices each month, such as fuel, to provide a more accurate picture of where inflation is sitting.
In a statement accompanying the decision, the board said the inflation outlook has been revised "materially higher" that previously forecast.
"Inflation is now forecast to remain elevated through much of 2027 and is not expected to reach the top of the 2–3 per cent target range until late 2027, around three quarters later than previously forecast," the statement said.
The board said the four rate hikes since the start of the year had already tightened financial conditions.
“The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen,” the statement said.
“Higher interest rates and falls in housing prices and turnover are expected to weigh on growth in dwelling investment and household consumption.”
The decision to raise the cash rate was by majority, the statement said. Six board members voted to increase the cash rate to 4.85%, while three members voted to leave the cash rate unchanged.
While the bank had been hoping for some cooling after hiking rates in February, March, May and September, its not clear when the peak of this inflationary period will be reached.
“The economy has slowed, and the labour market has eased a bit in recent months, but RBA is yet to be convinced that inflation will return sustainably to target without further tightening,” realestate.com.au executive manager of economics Angus Moore said.
“For the housing market, another rate rise will lengthen the downturn already underway.”
Home loan repayments set to rise
Yet another rate hike will be unwelcome news for households in the lead up to Christmas, with lenders largely expected to pass on the cost to borrowers as pressures bite.
“My advice to mortgage holders is that you should speak to your mortgage broker to see if your home loan is still competitive,” Mortgage Choice chief executive Anthony Walrdon said.
Those with variable loans are likely to feel the pinch of increased repayments from mid-December, which will be as high as $154 per month in the most expensive parts of the country.
New figures from realestate.com.au show exactly how much more borrowers with a median-priced home in every capital city can expect to pay on their mortgage from next month.
It’s a bitter pill for households to swallow as values also continue to be wiped from properties in every corner of the country.
“Further increases in mortgage rates will reduce borrowing capacities again for prospective buyers, adding to the downward pressure on home prices,” Mr Moore added.
