RBA's November rate hike overshadows Melbourne Cup festivities

By Newsdesk

November 07 2023
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In a move that managed to draw attention away from the thrill of the Melbourne Cup, the Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.35 per cent, surprising Australians nationwide.

RBA's November rate hike overshadows Melbourne Cup festivities

With the decision arriving amidst widespread debate over the direction of monetary policy, the increase comes in response to persistent inflationary pressures, as signalled by the latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics.

For many Australian borrowers, the jump from a 4.10 per cent cash rate represents a significant shift, casting a shadow over what is typically a celebratory day. Despite hopes that inflation was slowing down, Hayden Groves, president of the Real Estate Institute of Australia (REIA), suggested that the RBA may have acted prematurely. "These supply side factors cannot be fixed with another rate rise," Groves stated, pointing out that the RBA's control is limited to demand side adjustments through monetary policy.

On the other hand, PropTrack's senior economist Eleanor Creagh highlighted the tough position the RBA found itself in, saying that "in order to keep inflation expectations anchored and maintain confidence in returning inflation to the target range... the Reserve Bank lifted interest rates again today."

While the property market has surged forward this year, supported by low interest rates and increased domestic demand, Creagh anticipates that the November rate hike will not drastically alter its trajectory. She predicts "strong population growth, tight rental markets and a housing shortfall fuelling further price rises," despite the recent increase.

Offering a different perspective, Rethink Investing's managing director Scott O'Neill proposed that the rate rise could eventually lead to more advantageous borrowing conditions. "Home owners, therefore, might find themselves in a more favourable lending environment, with lower mortgage rates and increased affordability," he envisaged, suggesting a potential easing of rates in the future.

Moreover, Mathew Tiller, head of research at LJ Hooker Group, expressed confidence in the resilience of Australia's property market. Tiller reassured that "home owners who have to sell due to financial reasons are going to achieve a better result now," alluding to the possibility of downscaling for those facing mortgage challenges.

The decision's broader implications, however, were summarised by Peter White, managing director of the Finance Brokers Association of Australia. With a hint of concern, White reflected on the rate rise, acknowledging the economic rationale but also reminding of its human impact: "I understand the need for the RBA to do what they feel is best for the nation economically, but surely as a society we also have to consider the human cost." The RBA's November decision thus leaves Australians in contemplation, balancing the needs of the economy with the welfare of its people.

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