RBA raises cash rate again but economists predict relief may be in sight

The Reserve Bank of Australia (RBA) has increased the official cash rate by 50 basis points to 2.35% at its September board meeting today. It’s the fifth cash rate hike this year, with relief on the horizon still potentially a few months away for Aussie borrowers, according to some economists.

The RBA’s run of cash rate hikes has persisted this month, as our nation’s central bank continues in its efforts to get inflation under control. Today’s rise to 2.35% means that this is the first time the cash rate has been at 2% or above since April 2016, more than six years ago.

Cash rate hikes may not slow down until the end of the year

Economists have predicted that the current series of cash rate hikes, which began in May and has continued to today, could potentially slow down by the end of the year, with the possibility of the RBA hiking the rate by lower increments perhaps giving some relief to Aussie home loan borrowers.

In a survey conducted by news agency Reuters last week, 27 of 29 economists polled said they believed the RBA would hike by 50 basis points (bps) in September, and the majority of survey respondents said that smaller hikes of 25 bps might be possible for October and November this year.

David Plank, Head of Australian Economics at ANZ, told Canstar that in his view, 50 bps hikes could well continue into October and November.

“The data will be critical,” he said.

“If the labour market stays strong, which is what we expect, then further 50 bps moves after September are more likely.”

How could the September cash rate hike affect your mortgage?

Aussies “smashed” with rate rises

With mortgage stress looming for some Australian homeowners, the prospect of further cash rate hikes will be concerning.

Last week, Greens Senator Nick McKim asked the RBA to put a pause on rate rises until after the federal budget in October, and was critical of the bank’s Governor Philip Lowe, who last year told Australians that the central bank didn’t expect rates would rise until at least 2024, due to slow wages growth and low inflation at the time.

“Hundreds of thousands of people were induced into taking on massive debts on this basis,” Senator McKim said, adding that the RBA has “smashed” homeowners and renters with a series of rate increases, and saying that, in his opinion, the federal government ought to look to policy measures to curb inflation.

“The RBA needs to be upfront with the Australian people,” he said.

Others, however, have argued that the RBA effectively had no other choice than to begin raising rates in mid-2022, and that had it not done so, Aussies could have suffered even more cost of living pressure due to inflation.

Fabrizio Carmignani, Professor of Economics at Griffith University, recently told Canstar that “if the RBA were inactive, then inflation would accelerate even faster.”

“This could lead to a spiral that gets quickly out of control,” he said, adding that exponentially rising inflation would take a toll on the economy and households.

The RBA and its board are independent, although they are accountable to the Parliament of Australia. In July of this year, it was announced that the RBA will be facing a review, the first of its kind in nearly 40 years, to consider how well the central bank is meeting its objectives, as well as how it’s managed and governed.

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