The Reserve Bank has hiked rates for the fifth time this year, from ۴.۶% to ۴.۸۵%, in an attempt to regain control of surging inflation amid an ongoing global oil shock triggered by the war in the Middle East.
The RBA’s decision to hit mortgage holders again is no surprise after inflation jumped to ۴.۳% in the year to September and comes after tough talk from senior central bank officials over recent days and weeks.
The decision split the monetary policy board, with six members voting for a hike, while three were in favour of holding the cash rate steady.
In its post-meeting statement after the decision, the board repeated that it “will continue to do what it considers necessary to bring inflation sustainably back to target”.
The statement did not include an explicit reference to the potential need for further hikes, signalling the RBA is now prepared to wait and see the effects of this year’s five rate rises.
The cash rate has reached its highest level since ۲۰۰۸.
Back-to-back hikes will heap more pain on over ۳.۳m households with home loans and turn the screws on a federal government under pressure for its economic management.
The latest rate rise will lift the monthly interest payment on a $۷۰۰,۰۰۰ home loan by $۱۰۷, according to Canstar, bringing the total rise in repayments over this year’s five hikes to $۵۳۲.
As the central bank struggles to explain to Australians how interest rate hikes will help tame inflation fuelled by events overseas, the RBA’s latest set of forecasts in its Statement on Monetary Policy (SOMP) showed a difficult period ahead for the economy.
The forecasts showed the country’s cost of living crisis would extend for another year, even as Australia struggles with below trend economic growth and climbing unemployment.
The ۴.۳% inflation rate in the year to September was substantially stronger than the RBA had anticipated as a worsening Middle East conflict squashed hopes of a quick resolution to the global oil shock.
Inflation will push higher through the final months of ۲۰۲۶ and only return below ۳% – within the bank’s ۲-۳% target range – by the end of next year, or about nine months later than hoped, the latest forecasts showed.
Amid a heated political stoush over whether the federal government’s spending is to blame for high and rising inflation, the RBA noted in its SOMP that public demand was weaker than expected through the first six months of ۲۰۲۶.
That was the result of cost of living measures rolling off and “moderating” spending in areas such as defence and disability and aged care services, the SOMP said.
Global oil prices would ease over the coming ۱۸ months, but still remain relatively elevated, according to the forecasts, suggesting limited relief from high fuel costs for motorists and ongoing high costs for businesses.
“We view the risks to the inflation outlook as still skewed to the upside,” the report said.
Alongside persistent cost of living pressures, the RBA also predicted weak economic growth through to the end of ۲۰۲۸.
The economy would grow by ۱.۶% this year and by ۱.۳% in ۲۰۲۷.
That would be well below an estimated potential growth rate of about ۲%, but better than recent forecasts by bank analysts.
And despite the risks associated with a housing downturn that “is one of the steepest over the past ۵۰ years”, the central banks’ economists saw no evidence that the country was headed towards recession over the coming two years.
Unemployment, now at ۴.۷%, would end next year at about ۴.۹%, before creeping over ۵% in ۲۰۲۸. Importantly, employment would remain positive.
Meanwhile, there was no end in sight for the global artificial intelligence boom, which would continue to add to capacity issues in Australia.
The RBA nearly tripled its forecast for business investment growth in ۲۰۲۶ to ۱۲%.
