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The Reserve Bank of Australia has lifted the cash rate to 4.6 per cent, its highest level since 2011, flagging further increases if needed as inflation stays above target and the US war on Iran pushes prices permanently higher.
The Reserve Bank of Australia has raised the cash rate to 4.6 per cent, the highest level since 2011, and warned that further hikes could follow if needed.
The widely expected increase, the fourth this year, lifts the rate from 4.35 per cent and adds to repayment costs for millions of mortgage holders. It marks a 15-year high for Australian borrowing costs. RBA governor Michele Bullock said inflation had been too high for most of the past six years but she was confident higher rates would bring it back down. She told reporters in Sydney that the board knew the decision would hit some people hard.
RBA Unanimous Vote Responds To AI And Iran
Hopefully in the next couple of years, when we get inflation back down, this will all have been worth it, she said. The board voted unanimously for the hike in response to higher prices from the AI investment boom and fears that firms would start passing rising costs on to consumers. Bullock singled out the US war on Iran, saying it could disrupt oil supply longer than expected.
It has lasted and there does not seem to be any end to it, she said, adding that fuel, fertiliser and transport prices are now permanently higher. Data due on Wednesday is expected to show underlying inflation rising at an annual pace of 3.6 per cent for the third month running in August, well above the RBA target range of 2 to 3 per cent.
The board said in its statement that the economy was slowing as expected but it would still lift rates if needed. Trimmed-mean inflation is forecast to stay above the midpoint of the target band for almost seven years, until mid-2028. Bullock said the RBA did not expect a recession but might have to create one if households began to assume inflation would stay at its current level.
If people start saying three-point-something or four per cent is fine, you might need quite a dramatic slowdown in the economy, she said. But she said she wanted to avoid a massive increase in unemployment and did not like the idea of job losses, adding that maybe there do not need to be any more interest rate rises. Markets read her remarks as a sign the RBA would avoid multiple rate rises.
Analysts Predict RBA Hold Or Late Hike
Another increase was still expected by February or earlier, but traders cut their bets on a further hike next year to just a 50 per cent chance. Analysts at ANZ and UBS kept forecasts of a hike as soon as November. AMP economist My Bui said Bullock offered a balanced view of the risks and predicted rates would stay on hold. Commonwealth Bank and NAB also reaffirmed forecasts that rates would stay put.
Opposition Leader Angus Taylor blamed federal government spending for the hike and said it would not be restrained by higher interest rates. This is a dark day, a tough day for hardworking Australian families with a mortgage, those in small businesses, he said. Treasurer Jim Chalmers said the government took responsibility for its part of the fight against inflation but was managing the budget responsibly, blaming the US war on Iran.
Australians are paying a very hefty price for that war in the Middle East and today that price became a bit steeper with this decision from the independent Reserve Bank, he said. The hike lands in a difficult political moment for Prime Minister Anthony Albanese, who will find it harder to repeat the election spending playbook he used against former Coalition leader Peter Dutton.
Voters were complaining about the cost of living when COVID stimulus was still supporting the economy, but that support is now gone. The share of mortgages on fixed rates has fallen from about 40 per cent then to around 5 per cent now, so this cycle of rate hikes will hit Australians harder than the one endured in 2023.
Australia Rates Compare Favorably To Global Peers
The current cash rate is the second highest in the advanced world outside Iceland and significantly higher than in nations such as New Zealand and Canada, where policymakers accepted more job losses to curb inflation. Independent economist Chris Richardson said the RBA pursued an experimental approach, trying to keep rates from going too high to preserve as many jobs as possible under its dual mandate of lower inflation and full employment.
That kept tens of thousands in work but contributed to higher inflation and rates for longer. Government spending is at record levels and the tax take is nearly the highest on record outside the early 2000s mining boom. Richardson said Labor should definitely be running a surplus, but added that he understood the politics of it, meaning voters are reluctant to accept tough love.
High prices have hurt working and middle-class voters who feel the system is not working, a situation described as gold for One Nation leader Pauline Hanson, whose populist right has gained a once-unthinkable ascendancy. Albanese had a dig at UNSW Professor Richard Holden on Monday after the economist suggested Labor was gaslighting voters by talking only about the Iran war rather than pre-conflict inflation.
Holden is a well-known critic of the government and that is not surprising, Albanese told reporters in South Australia. Holden said he had praised Labor for policies including changes to negative gearing but was opposed to the government frittering away a 400 billion dollar fiscal windfall.
Albanese got the ascendancy over Dutton with crowd-pleasers including an 8.5 billion dollar expansion of Medicare, a 16 billion dollar cut to student debt and giving all first home buyers access to 5 per cent deposits. He would hope that if he goes to the polls as close as possible to May 2028, rates may have fallen slightly and One Nation may have lost support.
Rates could rise twice more after this week, creating a summer of political pain for Labor and a rare opening for low-profile Opposition Leader Angus Taylor to steer debate back to economics. Turmoil on bond markets will make it more expensive to take on debt to fund election spending, and the budget is in worse structural shape than when Labor won power.
Chalmers has a reflex habit of blaming the previous Coalition government for economic troubles, but colleagues say that is wearing thin, as the Coalition era will be ancient history by the next election. The current moment could be remembered as a normal midterm slump, seen off by many previous prime ministers, but there are plenty of ifs.
smh 
theage:These rate hikes will hit harder than 2023, and the PM can’t spend his way out of it 
GuardianAus:RBA interest rates: Reserve Bank raises cash rate to highest level in 15 years and warns of more hikes ‘if needed’This story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
Interest Rate Hike Anthony Albanese Inflation Australia One Nation Michele Bullock Australian Inflation Mortgage Holders US War On Iran
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