RBA hikes rates by 0.25% in November meeting

The Reserve Bank of Australia’s war on inflation enters its seventh month, with the Board lifting official interest rates by 0.25 basis points to 2.85 per cent at its November meeting today.

This marks the seventh consecutive month of monetary policy tightening, during which the cash rate has jumped up by a total of 275 basis points.

It’s also a shift away from the more aggressive stance the RBA maintained from June to September, when it lifted rates by half a percentage point in four successive meetings.

RBA governor Philip Lowe acknowledged the move would put more pressure on household budgets but said it was necessary to keep a lid on inflation.

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8 per cent later this year,” he said.

“Returning inflation to target requires a more sustainable balance between demand and supply.”

Assuming lenders pass on today’s increase in full, the average variable home loan rate would jump to 5.45% p.a. On a $500,000 loan, that would translate to an extra $74 in monthly repayments.

Rate hikes yet to shift the needle on inflation

The latest data from the Australian Bureau of Statistics showed the Consumer Price Index rose 1.8 per cent over the September quarter, well above the market median forecast of 1.5 per cent.

Annual trimmed mean inflation increased to 6.1 per cent — the highest since the ABS began publishing its inflation datasets in 2003 and topping RBA estimates that date even further back.

According to the ABS, the inflationary surge has been mostly driven by higher construction costs for new dwellings and ballooning prices on automotive fuel and food.

Higher energy bills have also tormented households, with the Labor government’s budget documents warning that energy prices could increase by more than 50 per cent in 2023.

In a research note released last week, CBA head of Australian economics Gareth Aird said the RBA’s aggressive rate hikes likely won’t shift the needle on inflation until next year.

He expects the RBA will deliver one final 25 basis point hike at its December meeting, which would leave the cash rate sitting at 3.10 per cent.

Economists at Westpac — who had called for a 50 basis point hike ahead of today’s decision — have argued that “strong rhetoric and strong action” are needed to contain inflationary expectations.

“During this period of rising inflation we have been most concerned about a strong inflationary psychology becoming entrenched in the Australian psyche,” said Westpac chief economist Bill Evans.

Evans argues that if left unaddressed, businesses will use inflation as a cover to raise prices, while consumers will come to see this as a given that can only be countered by demanding higher wages.

Property market feeling the bite of rate rises

The housing market has been the most obvious casualty of the RBA’s current tightening cycle, with data from CoreLogic showing national dwelling values down -6 per cent since peaking in May. 

Year-to-date sales volumes have also tumbled -11 per cent compared to last year, while the value of new loans has fallen -13.9 per cent since April.

Sydney is bearing the brunt of the current downturn, with prices falling a staggering 10.1 per cent since peaking in February this year. It’s followed by Melbourne (-6.4%) and Brisbane (-6.1%).

While the dip in prices is welcome news for those hoping to enter the market, it hasn’t come close to undoing the gains recorded over the pandemic period. And the hurdle of high borrowing costs has only gotten higher.

Currently, the average variable rate among lenders we track sits at 5.20% p.a. Fixed rates — which are forward-looking — are even higher, with the average 5-year rate now 6.38% p.a.

The government’s hopes to tackle some of the issues around affordability with its recently announced Housing Accord, which will bring institutional investors and the construction sector to the table to build one million new homes over five years.

The plan is scheduled to begin in mid-2024 to coincide with the expected slowdown in construction activity.

While the Albanese government has affirmed its commitment to boost housing affordability by several means, such as its Help to Buy scheme, the approach laid out by the Housing Accord has raised some eyebrows.

Many analysts have pointed out that the target of one million homes isn’t all that ambitious compared to current construction levels. While others suggest the promotion of institutional ownership might be ill-advised in a country where outright home ownership is held up as an ideal.

Which banks are raising interest rates?

Following each rate hike the RBA has delivered this year, most lenders we track have responded by raising their variable rates in kind. We expect things to play out the same way in November.

We’ll be keeping track of how banks respond to the RBA’s decision as word comes in. Visit our RBA rate tracker page for more information and use our rate change calculator to see what your repayments could look like under rate hikes of various sizes.