The 25 basis point hike marks 275 basis points’ worth of tightening to the cash rate since May.
For homeowners with an average sized mortgage, a 30-year 3.00% p.a. interest rate increasing to 5.75% p.a. over the past seven months means paying an extra $954 in monthly interest costs.
Economists from ANZ, CBA, and NAB correctly predicted the Board would raise the cash rate by 25 basis points, while Westpac Chief Economist Bill Evans anticipated a 50 basis point rise.
CommBank Head of Australian Economics Gareth Aird said the impact of policy tightening will only begin to impact consumer inflation in 2023.
“It is worth noting that the RBA’s aggressive tightening cycle [250bp of rate hikes between the May and October Board meetings] has had no impact on the June or September quarter inflation outcomes,” Mr Aird said.
“Indeed the rapid recent rate hikes and our expectation of some further modest tightening is unlikely to shift the inflation needle over the December quarter; inflation is a lagging indicator.”
Inflation is currently sitting at 7.3%.
PropTrack Senior Economist Eleanor Creagh said the RBA appears to be slowing down the pace of its hikes, giving prospective buyers a confidence boost.
“From here, further rate rises will increase borrowing costs and reduce maximum borrowing capacities, weighing on prices,” Ms Creagh explained.
“However, this will be offset by tight rental markets and rental price pressures, rebounding foreign migration, low unemployment and housing supply pressures.
“The fastest rise to the cash rate since 1994 has quickly rebalanced the housing market from last year’s extreme growth levels, with prices falling from their peak nationally.
“Prices nationally are now sitting 3.53% below their March peak.”
PRD Chief Economist Dr Asti Mardiasmo said based on historical patterns, it’s likely the Board will increase the cash rate by 25 basis points, its seventh consecutive hike.
“Inflation is still high, no doubt about that, however it is lower than the 8.0% peak that they predicted back in the August statement of monetary policy,” Dr Mardiasmo told Savings.com.au.
“Further, we know from the Federal Budget 2022/2023 announcement that there is no escape from rising electricity and fuel costs, or any other costs with our groceries.
“The RBA did commit that they will monitor people’s psychology and consumer sentiment closely, and we are still at a lower level compared to COVID-19, which does not bode well for people spending their money into the economy [they would rather save]."
When could the cash rate peak?
The latest cash rate predictions for the big-four banks' economists are as follows:
- CommBank: 3.10% by December 2022
- ANZ: 3.85% by May 2023
- NAB: 3.60% by March 2023
- Westpac: 3.85% by March 2023
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