Reserve Bank governor Michele Bullock had dealt a fresh blow to borrowers after lifting the official cash rate by 25 basis points to 4.35 per cent in a bid to tame persistent inflationary pressures.
Before the Melbourne Cup Day meeting, economists almost unanimously forecast the new governor to deliver her first hike as the nation’s top central banker, while money markets implied a near 70 per cent chance that the central bank would end its extended rates pause.
A rebound in property prices, still-hot services inflation and the resilience of the jobs market meant inflationary pressures were more persistent than the RBA had expected, forcing the central bank to hike rates a 13th time in order to bring inflation back to its 2 to 3 per cent target range.
Ahead of the hike, analysis from the Australian National University showed almost half of Australia’s households were diverting at least 30 per cent of their disposable income – a standard gauge of mortgage stress – to service their debts.
With rates surging by 425 basis points since May 2022, households with an average variable-rate mortgage of $585,000 will be spending an additional $1513 every month on repayments after the banks pass through the latest rate hike.
Higher interest rates have also substantially diminished the amount households can borrow.
A family with two children and a household income of $150,000 have seen their borrowing capacity slide by almost 30 per cent.
Despite households and businesses demanding much-needed rates reprieve, markets ascribe a one in four chance of a another hike at the following RBA board meeting on December 5, and 100 per cent odds by March next year.
The Cup Day hike is the first time since June that the RBA has raised interest rates after taking an extended pause since June as it waited to assess the delayed impact of the 12 previous hikes.
The full effect of interest rates typically takes between 12 to 18 months to flow through the economy. Due to an increase in fixed-rate lending during the pandemic, the transition may be even slower through this tightening cycle.
November’s decision followed the release of fresh inflation data that revealed price pressures rebounded in the September quarter, as soaring costs for fuel, rents and across the labour-intensive services sector pushed headline inflation to 1.2 per cent in the September quarter, up from 0.8 per cent in June.
Ahead of the central bank’s meeting, the International Monetary Fund had urged the Reserve Bank to lift interest rates higher and for federal, state and territory to slash or delay some infrastructure spending to avoid further mortgage pain.
More to come.