RBA’s Michele Bullock delivers her first interest rate hike

After a four-month reprieve, mortgage payments are set to rise again after the RBA increased interest rates to 4.35 per cent with more hikes still possible.

New Reserve Bank of Australia governor Michele Bullock has delivered her first interest rate hike while acknowledging many households are already experiencing “a painful squeeze” on their finances.

After keeping interest rates on hold at its past four meetings, the RBA board lifted the cash rate by 25 basis points to a 12-year high of 4.35 per cent after its monthly meeting on Tuesday.

Ms Bullock said inflation had passed its peak but was still too high. The RBA was “resolute in its determination” to return inflation to its 2-3 per cent target range – something not expected to happen until the end of 2025.

“While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected,” she said.

“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 acknowledged many households were under pressure from high inflation and higher rates.

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income.”

The RBA kept its tightening bias, meaning it is leaning in favour of rate hikes. But the central bank slightly softened its wording around the potential for future moves.

“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,” Ms Bullock said.

“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.”

Westpac chief economist Luci Ellis, a former RBA assistant governor, said follow-up rate increases were far from assured, noting the shift in the RBA’s language.

“This reads as the board hoping not to have to raise rates again, but being very willing to do so if things change,” Ms Ellis said.

“While a December move is unlikely, it is more likely that the February meeting would become ‘live’ if the inflation outlook continues to lift.”

Commonwealth Bank’s head of Australian economics Gareth Aird expected the RBA to leave interest rates on hold from here, but acknowledged there was a risk of another 25 basis point hike in the short run.

National Australia Bank and Oxford Economics, however, expect a single rate hike will not be enough to mitigate the risks on inflation.

“We pencil in a further hike to a 4.6 per cent peak – most likely in February, when the board will have the benefit of the full fourth quarter consumer price index to assess the evolution of inflation pressure (though December is a live possibility),” NAB chief economist Alan Oster said.

NAB also pushed back the timing of rate cuts until November 2024, previously predicting August.

The hike is the 13th rate rise since the RBA started lifting rates in May 2022.

It will add $76 to monthly mortgage repayments for the average borrower who had a $500,000 debt at the start of the rate rise cycle, according to comparison site RateCity.com.au.

That will take the total increase in their repayments since the start of the hikes to $1210 a month – a 52 per cent rise, RateCity said.

Deloitte Access Economics partner Stephen Smith said it was “the rate hike we didn’t need”, adding there was not enough evidence to suggest the uptick in inflation was here to stay.

“With a slowing economy, supply driven inflation, a more volatile geopolitical and global economic outlook, and past rate rises still to take full effect, mortgage holders and businesses seeking capital to invest will pay the price today,” Mr Smith said.

“With increases to the cash rate only effective at reducing demand-led inflation, it is hard to see what a November rate hike achieves other than making it harder for Australians to pay their mortgage in the lead-up to Christmas.”

The Australian Chamber of Commerce and Industry (ACCI) said the hike would add ‘another layer of stress’ to businesses.

“This dire situation is reflected by the fact business insolvencies have increased by 60 per cent in the year to June. These are now well above pre-Covid levels,” ACCI chief executive officer Andrew McKellar said. “The Reserve Bank must consider the cumulative impact of these financial strains on the Australian business landscape.”

Originally published as RBA’s Michele Bullock delivers her first interest rate hike