RBA resumes rate rampage

Last month, the RBA revealed that a hike during the May meeting was still a possibility pending further information on inflation, monthly readings on the labour market, household spending and business conditions, and further developments in the global economy and financial markets.

The recently released March quarter consumer price index (CPI) figures published by the Australian Bureau of Statistics (ABS) revealed that inflation had dropped from its 33-year record high of 7.8 per cent to 7 per cent.

However, this is still well above the central bank’s target 2–3 per cent range. As such, the RBA has decided to lift rates once again to help bring down inflation.

RBA governor Philip Lowe said: “Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. Given the importance of returning inflation to target within a reasonable time frame, the board judged that a further increase in interest rates was warranted today.

“The board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook. 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 per cent in 2023 and 3 per cent in mid-2025.”

The chief executive of aggregation group Mortgage Choice, Anthony Waldron, said the latest inflation data likely “forced the board’s hand”.

“The RBA’s decision will likely be met with disappointment by the nation’s borrowers after the bank’s April decision to pause its recent run of cash rate hikes,” Mr Waldron added.

Finsure CEO Simon Bednar stated in the lead-up to the decision that the March quarterly inflation figures have “taken the pressure off the RBA” to increase the cash rate.

However, while this would’ve been a relief for mortgagors, Mr Bednar warned “we are not out of the woods yet”.

“With uncertainty surrounding the current economic outlook and the need to contain inflation, the RBA will be more likely to look to further increase official interest rates than reduce them,” Mr Bednar stated.

“But for the time being the central bank will continue to assess the impact of the 10 successive increases to the cash rate implemented since May last year.”

Connective executive director Mark Haron stated there will be a significant and ongoing impact on the property and lending market that brokers need to prepare for. 

“This latest rate hike could come as a surprise to a lot of borrowers after a momentary pause and it will extend the ‘fixed rate cliff’ into a long and windy road for many borrowers as they process the continued uncertainty,” Mr Haron said.

“The truth is brokers have never been more valuable.

“We’ve got economic uncertainty and change coming to the RBA itself. The opportunity for brokers is to ensure they’ve done the work and have the technology and tools to connect with clients and work with them to make the best decisions and take the right actions.”

Ahead of the RBA board meeting, the Commonwealth Bank of Australia (CBA) correctly forecast that the Reserve Bank would increase the cash rate, although it noted that it would be a “very close call”.

“We ascribe a 55 per cent chance to a 25bp rate increase and a 45 per cent probability to no change (we consider the risk of any other move immaterial),” the bank stated earlier this week.

Westpac, ANZ, and NAB all predicted a further pause in the cash rate, retaining it at 3.60 per cent, based on the recent CPI figures. 

More to come.

[RELATED: ‘What’s the alternative?’ RBA governor defends rapid rate hike cycle]