The Reserve Bank of Australia has today announced that they will raise the cash rate again, this time by 25 basis points. This demonstrates a slowdown in interest rate hikes after the last several months and brings the cash rate to 2.6%.
Commonwealth Bank Australia are the only one of the big four banks to have predicted this rise, with all other three predicting the rate would rise by 50 basis points.
“The cash rate has been increased substantially in a short period of time”, says RBA Governor Philip Lowe. “Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia”.
“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 this”, Mr Lowe concluded.
Shortly after the RBA’s announcement, Treasurer Jim Chalmers stated, “This is now the sixth in as many months and the statement from the Reserve Bank governor today indicates that it is likely that there will be more interest rate rises as well. This is important context for the budget that we are currently finalising to be handed down in three weeks today.”
Looking forward, each of the big four banks has also made predictions for the coming months and how interest rates will change. ANZ does not predict cuts to the cash rate until late 2024, with a forecast that the RBA cash rate will reach its peak of 3.35 % by the end of 2022.
Prior to today's announcement, NAB predicted that the cash rate would reach a maximum of 3.10 % in November 2022. NAB has described this as “mildly contractionary.” Commonwealth Bank of Australia (CBA) has forecasted that, once the RBA has held the cash rate for long enough to affect inflation, the Board may cut the cash rate in late 2023.
Westpac is the only big four bank currently forecasting that rate hikes will continue into 2023. Westpac chief economist Bill Evans predicts a maximum cash rate of 3.60 % in February 2023.
“Clear evidence of the expected slowdown in inflation will not be apparent until late February, allowing the RBA to go on hold in March on evidence that growth is slowing and that inflation and rates have also peaked in the US”, says Mr Evans.
Following the continued rising interest rates in Australia, CoreLogic’s recent reports show that the pace of price falls in real estate have eased in September. CoreLogic research director Tim Lawless has stated that whilst a 15 % drop in national home values from recent peaks, as signalled to be possible by the RBA, would only take home values to April 2021 levels.
Whilst the continuation of interest rate rises will undoubtedly influence an increase in monthly repayments for many mortgages, a rise of 25 basis points does indicate a slowing of rate hikes. For those looking to purchase off-the-plan property in Australia, this is likely to alleviate some worries.
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