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RBA calls 2.85% November cash rate

by Fabian Cotter14 minute read
RBA calls 2.85% November cash rate

Mortgage holders brace for further repayment pain as the November cash rate has jumped to 2.85 per cent.

Borrowers can expect even further home and investment property loan repayment increases soon after the Reserve Bank of Australia (RBA) lifted the cash rate a further 25bps to 2.85 per cent at Tuesday’s (1 November) board meeting.

The November announcement continues the central bank's rate hiking cycle, which began with a 25-bp increase in May.

It then continued with 50-bp hikes in JuneJulyAugust and September, plus a lower 25-bp jump in October.


The Melbourne Cup Day decision marks the seventh month in a row that the RBA has hiked rates, as it attempts to curb rising inflation.

Leading into the November rate call, Australia’s big four banks largely entertained a 25-bp increase this month – bar Westpac which touted a ramped-up 50-bp hit.

Most economists had agreed a continued 25-bp rise for November looked likely, but some suggested that local conditions and updated higher inflation (which is currently sitting at an annualised growth rate of 7.3 per cent) would bring a 50bps hike back into scope.

Indeed, speaking of the decision, RBA governor Philip Lowe commented: "As is the case in most countries, inflation in Australia is too high. Over the year to September, the CPI inflation rate was 7.3 per cent, the highest it has been in more than three decades. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply.

"A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand."

He continued: "The board has increased interest rates materially since May. This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target.

"The board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."

According to a recent broker survey from Joustmortgage brokers in Australia believe the cash rate could rise to over 4 per cent in the next 12 months.

A matter of choice for borrowers

Speaking about the 25 basis points to 2.85 per cent decision, the CEO of franchise brokerage Mortgage Choice, Anthony Waldron said: “Today’s decision from the Reserve Bank will come as unwelcome news to borrowers and hopeful buyers alike.

“While last month saw a smaller-than-expected rate increase from the RBA, most lenders moved quickly to pass on the cash rate rise to their customers and I suspect this month will be no different.  

“We continue to see some lenders offering significant discounts on new loans, making it more important than ever for borrowers to stay on top of their interest rate and ensure they’re still getting a good deal.” 

Mortgage Choice home loan submission data showed a small uptick in the proportion of loans with a fixed component during October. In September, just 4 per cent of loans submitted by Mortgage Choice brokers had a fixed component, this rose to 6 per cent in October.  

“The rise in demand for fixed rate loan products is unsurprising in an environment where rates look set to rise for some time yet. Borrowers are understandably seeking certainty in their home loan repayments,” said Mr Waldron. 

Mark Haron, the executive director of aggregation group Connective, also suggested that the latest cash rate rise would "continue to dampen the housing market and put a tighter squeeze on household budgets".

"In times like these, brokers provide invaluable support to stretched mortgage holders by helping them understand the options available which could include refinancing to a more affordable loan," Mr Haron said.

"The surge in refinancing which started months ago hasn’t slowed as borrowers continue to search for ways to ease the pain of higher loan repayments and rising inflation.

"We’re also seeing more interest from investors and first home buyers who are actively looking for opportunities as the property market cools. First home buyers recognise the important role of brokers in helping them understand the changing lending landscape and the impacts rate rises can have on their borrowing capacity and loan pre-approvals," he said.

Broker Theo Chambers, CEO of Sydney-based mortgage brokerage Shore Financial, also commented on the November rate decision, stating: The market was expecting a 0.25 basis point increase so today’s announcement comes as little surprise to most. The expected outcome is that people’s borrowing power will continue to be reduced. Consumer spending is still quite high at the moment, which is keeping inflation high, recently reaching the 7 per cent mark in Australia.

"As for other likely outcomes, unemployment is now forecast to start increasing as rates continue to rise, and could reach 4.5 per cent in 2023. This can be put down to the fact that once consumer spending starts decreasing and inflation subsequently starts decreasing, the global economy will probably retract a little bit. As a result, businesses will feel less revenue and profits will fall, leaving many in a situation where they may have no choice but to lay off some staff as they go into cost-cutting mode.”

The latest PropTrack Home Price Index revealed that home prices stabilised in October, with national dwelling values falling just 0.06 per cent, the smallest fall since national home prices peaked in March 2022. 

PropTrack senior economist Eleanor Creagh, said: “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 per cent below their March 2022 peak."

"As borrowing capacities are constrained and buyers’ budgets shrink, the most expensive markets of Sydney and Melbourne are leading the price declines, and in Sydney prices are down more than 6% from peak and below levels recorded in October last year. 

“From here further rate rises will increase borrowing costs and reduce maximum borrowing capacities, weighing further on prices. However, this will be offset by tight rental markets and rental price pressures, rebounding foreign migration, low unemployment, and housing supply pressures.” 

As such, Mr Waldron concluded: “As we approach the end of the year, I urge all borrowers to take stock of their financial position, to ensure they’re starting 2023 on the right foot. Those who haven’t had their home loans reviewed this year and those looking to buy in the coming months should speak to their broker to ensure they understand how the rising interest rate environment will affect them.”

[Related: Mortgage calculator use up +17%: ASIC]


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