Reserve Bank increases interest rates as housing values rise
The move has surprised most economists as mortgage holders take another hit
The move has surprised most economists as mortgage holders take another hit
The Reserve Bank of Australia board has decided to raise the cash rate by a further 25 basis points following its meeting this afternoon. This brings the rate up to 3.85 percent.
Citing a persistently high 7 percent inflation rate for the move, which has eased at a slower pace than hoped, the board reiterated its target of bringing inflation down to more manageable levels this year.
“The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook,” RBA governor Philip Lowe said in a statement. “While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range; inflation is expected to be 4½ percent in 2023 and 3 percent in mid-2025.”
Most economists predicted that the board would keep rates steady again this month, following criticism that it had not given the economy enough time to absorb the impact of previous rate rises.
Roy Morgan released research from February this year stating that almost 25 percent of mortgage holders were at risk of mortgage stress. The cash rate has now increased by 50 basis points since then.
Research director at CoreLogic, Tim Lawless, said the recent rise in housing values may have contributed to the board’s decision.
“Although housing considerations aren’t part of the RBA’s mandate, a return to a more positive housing trend could be accompanied by a lift in consumer attitudes, supporting consumption and potentially keeping inflation higher for longer,” he said.
“The lift in interest rates could act to dampen some of the recent housing exuberance, although a range of other factors are likely to support the continued stabilisation in home values including low available supply, extremely tight rental conditions and higher demand via net overseas migration.”
Mr Lawless predicted that today’s increase is likely to be the last following record rises over the past 12 months.
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