CANBERRA, ACT. — The Reserve Bank of Australia (RBA) board, in a unanimous decision, lifted the cash rate to 4.6 per cent, raising interest rates by 25 basis points to the highest level since 2011, as it wrapped up its two-day meeting this afternoon.
Expectations for a hike firmed in the weeks leading up to the decision, with hotter-than-expected inflation, rising oil prices and commentary from the RBA’s top brass.
Leading up to the decision, markets were fully priced in for another rate rise by February.
“Inflation remains elevated and some of the upside risks flagged in August are materialising. The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts,” the RBA said in a media release.
The pain for borrowers might not stop there, with markets placing an each-way bet for a third rate hike in 2027.
With the cash rate at 4.6 per cent, the average owner-occupier variable rate will rise to 6.49 per cent, according to financial comparison site Canstar.
Another two rate rises would mean monthly repayments on the average new owner-occupier home loan of $731,000 would be more than $650 higher than at the start of 2026.
“AI-related demand is driving rapid growth in global prices for technology-related goods. And there remains pressure on domestic capacity. Liaison indicates that firms are experiencing cost pressures and are either increasing the prices of their goods and services or looking to do so,” the RBA said in a media release.
There were signs the jobs market was already softening in August, when the unemployment rate rose to 4.6 per cent.
HSBC chief economist Paul Bloxham sees falling house prices, slower consumer spending and weaker construction, exacerbated by higher interest rates, contributing to a rising risk that Australia’s economy will tip into a recession in coming quarters.
“Growth in output has slowed but, at the margin, was stronger than expected in the June quarter. There are signs that growth in consumer spending is easing gradually as expected, although housing prices have fallen in most capital cities and new housing loans have declined noticeably.
“Labour market conditions have eased broadly as expected in recent months, and labour market leading indicators are broadly stable. Meanwhile, growth in business investment and debt is strong,” the RBA said.
If the economy deteriorates further, the RBA’s resolve on getting inflation back to target might be tested.
Earlier on Tuesday, the Australian Bureau of Statistics revealed household spending growth was flat in August.
On an annual basis, household spending was up 6.8 per cent, which indicated that the economy was still exceeding its supply capacity and further interest rates were needed, said EY Oceania chief economist Cherelle Murphy.
- With RBA and AAP.
