BREAKING NEWS: The RBA has responded to troubling inflation levels by raising interest rates to their highest point since November 2008.
The financial markets had priced in a 90 per cent chance of an interest rate hike and the Reserve Bank of Australia (RBA) didn’t deviate from the script.
The 25 basis point increase takes the official cash rate to an 18-year high of 4.85 per cent.
It’s a tough time for homeowners, borrowers and most households.
If the RBA lifts the cash rate by another 0.25 percentage points in November and lenders pass on the increase in full, Canstar analysis shows a borrower with a $600,000 debt and 25 years remaining at the start of the year could face an additional $92 a month in minimum repayments. That would take the cumulative increase across five hikes since February to $456 a month for a borrower who started with a $600,000 loan.
These budget blows come as households wrestle with CPI inflation of 4.3 per cent that is eroding wages while the values of their homes are plunging at the fastest pace in four decades.
Amid concerns interest rates as a tool are not impacting inflation , the RBA Board was split in its decision, with six in favour of the rate increase and three voting to keep them on hold.
Disconcertingly, the last time the RBA had rates at this level was in the days before the onset of the Global Financial Crisis (GFC). On November 5, 2008, a frantic RBA cut the cash rate by a whopping 75 basis points, moving it from 6.00 per cent down to 5.25 per cent. A month later, they convened again to slash it further to 4.25 per cent.
Pending an AI bubble-inspired global crash, there’s no immediate signs of inflation coming down of its own accord. The conflict in the Middle East rumbles on without any political resolution in sight, driving up the price of fuel and, subsequently, the cost of many goods.
The fifth rate rise of 2026 might not be the last in the current cycle.
Sally Auld, Chief Economist, NAB, expects more borrower pain to come.
“We need to be open to the possibility (of more rate hikes), given the shift in rhetoric from the Reserve Bank, that it is possible we might see more interest rate rises in the next few months.
“We are in for a period of reasonably elevated rates for a while yet.”
Angus Moore, realestate.com.au’s Senior Economist, said that while the economy has slowed, and the labour market has eased a bit in recent months, the RBA is yet to be convinced that inflation will return sustainably to target without further tightening.
“Higher mortgage costs will continue to weigh on household spending and work to slow economic growth, although a reasonably resilient labour market and growing incomes continue to provide an important buffer.”
Property prices will also be impacted by the high rates environment.
“For the housing market, another rate rise will lengthen the downturn already underway,” Mr Moore said.
Home prices nationally have declined for seven straight months, and are down 4.3 per cent from peak.
“Further increases in mortgage rates will reduce borrowing capacities again for prospective buyers, adding to the downward pressure on home prices.
“The downturn, while brisk, remains an orderly adjustment driven by rising rates and affordability pressures, rather than a distressed housing correction.
“Labour market conditions remain resilient by historical standards, mortgage arrears rates remain low, few borrowers are in negative equity, and many households retain substantial repayment buffers.”
