RBA lifts interest rates to 4.35%

“Still too high”: RBA calls out inflation as it increases the official interest rate by 0.25%, delivering fresh cost of living pain for Aussies.

The Reserve Bank of Australia (RBA) has increased the official cash rate to 4.35 per cent at its November meeting, delivering fresh cost of living pain to Aussies ahead of Christmas.

The rise, which is expected to be passed on in full by the major banks, will add $15 to repayments for every $100,000 borrowed for those with a variable home loan.

The rate rise - which was the first for four months - was expected by the majority of economists with 32 of the 45 economists surveyed by Finder and 33 out of 35 economists surveyed by The Australian Financial Review forecasting an increase.

Bendigo and Adelaide Bank chief economist David Robertson is among many economists tipping a rate rise later today.

Speaking following today’s decision, RBA governor Michele Bullock said: “Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.”

“The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly.”

Bendigo and Adelaide Bank chief economist David Robertson told news.com.au that the RBA has “little choice” but to lift interest rates, based on recent economic data.

Mr Robertson said stronger than forecast quarterly inflation and monthly retail sales figures, coupled with low unemployment, meant that he “couldn’t see how the RBA could look at all of that and not go”.

The inflation and retail sales data indicates that Australians are still spending, despite the financial pain of the past year, and pose a challenge to the RBA’s goal of returning inflation to between two and three per cent by late 2025.

As of September 30, the headline annual inflation rate in Australia was 5.4 per cent and Ms Bullock said today it was expected to hit around 3.5 per cent by the end of the year.

“The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,” Ms Bullock said.

Governor of the Reserve Bank of Australia Michele Bullock has said it won’t tolerate high inflation. Picture: NCA NewsWire / Martin Ollman.

In a fresh blow for Aussie mortgage holders, Mr Robertson is forecasting that today’s interest rate rise won’t be the last in the current cycle, as getting inflation under control is “non-negotiable”.

He told news.com.au that the RBA is unlikely to increase rates at its last board meeting for 2023 on December 5, but that one more rate rise could come in February, at its first meeting for 2024.

This would follow the release of the next quarterly inflation data in late January.

Mr Robertson added that if inflation data from the next quarter doesn’t warrant a February rate rise, Aussies may still not be out of the woods, with the possibility of a rise in May following inflation data for the first quarter of 2024.

“History shows us – from the 70s and 80s – how difficult it is for a central bank to douse the flames of inflation,” he said.

“But history also shows us how damaging inflation can be.”

In announcing today’s decision, Ms Bullock said little to reassure Aussies that there won;t be another rate rise.

“There are still significant uncertainties around the outlook,” she said.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

Interest rates are expected to plateau for an extended period of time before falling, with a peak like Cape Town’s Table Mountain.

Along with many leading economists, Mr Robertson is predicting interest rates will remain higher for longer and not fall until 2025.

It’s a scenario commonly referred to as ‘more Table Mountain than Mt Everest’ in economic circles, in reference to Table Mountain’s long, flat plateaued top which contrasts with the sharp up and down of Mt Everest.

Originally published as RBA lifts interest rates to 4.35%