What does it all mean…
The Reserve Bank’s latest cash rate hike was more modest than expected, raising rates by 25 basis points rather than the widely expected 50. That more modest hike to 2.6% is an indicator that Australia’s inflationary pressure is beginning to ease, according to the Real Estate Institute of Australia.
“The cash rate has been rapidly increased from emergency settings in a short period of time, and, considering this, the RBA decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia,” REIA president Hayden Groves said.
In addition to hiking the official cash rate by 25 basis points, the RBA also increased the interest rate on Exchange Settlement balances by 25 basis points to 250%.
“It would now be prudent to wait for the lagged response to the five earlier increases with indications that tighter monetary policy is contributing to a slowing in household spending and confidence, business investment and normalising of house prices as increased mortgage payments squeeze disposable real incomes,” Groves said. “All eyes will be on the October 25 federal budget and the September quarter CPI the following day. These will be a major determinant of the RBA board’s November decision.”
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Groves said that raising the cash rate above its current level “would risk an unnecessarily abrupt slowing in growth in 2023.”
Groves said that rising interest rates have helped slow the extraordinary growth the property market has experienced since 2020.
“First-home buyers are benefitting from the stabilised house prices and rising cash rates, which is adding income to their deposits,” he said.
