RBA Lifts Rates 0.5% For The Second Month In A Row
Taming rising inflation is set to put further strain on household budgets.
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At its meeting today, the Reserve Bank of Australia decided to increase the cash rate target by 50 basis points to 1.35%.
Monetary policy globally is responding to this higher inflation with it predicted to be some time yet before it returns to target in most countries. Further, inflation is high in Australia too, with a tight labour market and capacity constraints in some sectors contributing to upward pressure on prices.
Inflation locally is forecast to peak later this year and then decline back towards the 2-3% range next year. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services.
According to Dr Philip Lowe, Governor of Monetary Policy at the RBA, the behaviour of household spending is of concern stating:
“The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates. Housing prices have also declined in some markets over recent months after the large increases of recent years.”
As for what’s ahead for the Australian economy and homeowners.
“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” said Lowe in the statement.
“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
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Mortgage holders are bracing themselves for more pain ahead of this afternoon’s board meeting of the Reserve Bank of Australia.
Westpac, ANZ and NAB are all predicting a rise of 25 basis points to the cash rate. The Commonwealth Bank has also said a rate rise is the most likely outcome, but that there is a small chance that the RBA may decide to leave the cash rate unchanged.
Another rate rise today would make it the eighth consecutive rise since April, when it was at a record low of 0.1 percent. At present, the cash rate is at 2.85 percent.
According to RateCity, a further 0.25 percent increase would add another $75 a month to repayments based on a $500,000 loan.
Inflation has remained stubbornly high at 7.3 percent and rising rates reflect an attempt to drive it down to a more palatable 3 percent into 2023.
Today is the last RBA board meeting for 2022, with the next meeting scheduled for February 2023.
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