RBA issues decision on September cash rates

It announced a fifth consecutive rate hike after its monthly board meeting on Tuesday, September 6.

The Reserve Bank of Australia (RBA) marked the first month of spring by launching its fourth consecutive outrageous rate hike, implementing a 50 basis points move from the current rate of 1.85% to 2.35%the highest level in seven years.

Eleanor Creagh, Principal Economist at Proptrack, explained how the RBA continues to price its bullish cycle forward to ensure “inflation expectations remain anchored around its 2-3% target.”

“Today’s rate hike will further increase borrowing costs and reduce maximum borrowing capacity, pushing house prices even lower. The level of interest rates will be a key driver of housing market conditions and the pace and depth of declines in house prices over the period ahead,” Ms Creagh said.

CreditorWatch Chief Economist Anneke Thompson added that with retail, labor and business sentiment data pointing to continued economic heat, the central bank is not hesitating to reach its objective of containing inflation.

“We expect the RBA to not press the pause button on cash rate increases until retail data starts to better reflect pessimistic consumer sentiment.”

Ms Thompson thinks this change could happen as soon as Christmas time, due to the fact that “mortgage holders will really feel the effects of higher repayments and, of course, higher prices for everything from furniture to restaurants and on vacation”.

The RBA’s complexity remains around record unemployment after the NAB’s business conditions survey indicates many businesses are operating at record capacity. Couple that with low migration and Ms Thompson explained that ‘the labor market is set to remain tight for some time to come’.

“The risk is that this encourages continued high consumption, even when sentiment is low, and the RBA is forced to keep raising the cash rate target.”

“On the other hand, households are finally starting to dip into their savings, which could incentivize more consumers to cut spending. The question is whether consumers will be scared enough by falling savings to cut spending. , even though job security is so high?”

She concluded that “retail spend data, coupled with the now hugely important anecdotal data from major retailers, will give us deeper insight over the coming months.”

RBA issues decision on September cash rates

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Last update: September 06, 2022

Posted: September 06, 2022