On September 29, the Reserve Bank of Australia lifted its cash rate target by 25 basis points to 4.60%, the highest level in roughly 15 years. This marked the central bank's fourth rate hike this year, with all nine members of the monetary policy committee backing the decision. The central bank stated that some of the upside inflation risks it had previously flagged are now materializing, and that it will raise rates further if necessary.
Energy and domestic cost pressures prompt another rate hike
The Reserve Bank of Australia said in its statement that following the widening of the Middle East conflict, global energy prices have risen noticeably above the assumptions underpinning its August forecasts. Global artificial intelligence-related demand is also pushing up the prices of technology products. At the same time, capacity pressures persist within Australia; the central bank's discussions with businesses revealed that some firms have already raised prices, while others are considering doing so. The latest July data from the Australian Bureau of Statistics showed the consumer price index rose 3.5% year-on-year, down from 3.8% in June; the trimmed mean inflation rate, which reflects underlying price pressures, held at 3.6%, still above the central bank's 2% to 3% target range. The central bank said that both recent inflation and economic growth have outperformed expectations at the time of the previous policy meeting, necessitating further tightening of financial conditions to prevent high inflation from becoming entrenched.
Economy has slowed, but the central bank keeps the option of further hikes open
Ahead of this decision, the Reserve Bank of Australia had already raised rates three times this year and kept rates unchanged at 4.35% at its August meeting. The central bank believes that previous rate increases have tightened financial conditions and that the economy is slowing: consumption growth is gradually weakening, house prices in most capital cities are falling, and new housing loans have declined markedly. However, business investment and borrowing growth remain strong. The central bank said future decisions will depend on economic data and its assessment of inflation and growth risks. For borrowers, a higher cash rate will increase repayment pressure on variable-rate mortgages. Following the announcement, Macquarie Bank said it would raise its benchmark variable mortgage rate by 0.25 percentage points effective October 15.
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