Cup day rate hike extends finishing line for borrowers

By Poppy Johnston
Updated November 7 2023 - 6:25pm, first published 6:22pm
Mortgage holders have been hit with more interest rate pain with a 13th hike announced by the RBA. (Bianca De Marchi/AAP PHOTOS)
Mortgage holders have been hit with more interest rate pain with a 13th hike announced by the RBA. (Bianca De Marchi/AAP PHOTOS)

More financial pain has been unleashed on borrowers after another increase to the official cash rate though the Reserve Bank seems reluctant to move higher again.

The widely-anticipated lift in November took the official cash rate to 4.35 per cent.

Most economists were expecting a 25 basis point increase, with all four of the big banks leaning towards a Melbourne Cup day hike.

The 0.25 percentage point increase follows four months on hold at 4.1 per cent, with the RBA moving to the sidelines to observe the impact of its aggressive tightening cycle started last year.

But data released over the past month pointed to uncomfortably persistent price pressures that cast doubt over the central bank's late 2025 timeline for bringing inflation back to target.

In a post-meeting statement, RBA governor Michele Bullock said inflation had passed its peak but was still too high and proving more persistent than expected a few months ago.

Firmer September quarter inflation data - particularly underlying measures - stronger than anticipated economic growth, resilience in the labour market and the recovery in home prices all factored into the November call.

"The weight of this information suggests that the risk of inflation remaining higher for longer has increased," the statement said.

The possibility of more tightening remains alive though Commonwealth Bank economist Gareth Aird said the reference to further increases was watered down a little.

"Whether further tightening of monetary policy is required... will depend upon the data and the evolving assessment of risks," Ms Bullock said following the November call.

Mr Aird said the probability of a follow-up rate hike in December was quite low.

The bank's economists believe 4.35 per cent is the peak of the cycle, though stronger-than-expected economic data could spur the central bank to go again.

Treasurer Jim Chalmers said the latest November increase would make life harder for people who are already doing it tough.

"We are doing our bit as a government when it comes to addressing this inflation challenge, rolling out cost-of-living relief in a way that puts downward pressure on inflation rather than add to our inflation challenge," Dr Chalmers said on Tuesday.

Provided banks pass the increase on to borrowers, Compare the Market analysis shows the cash rate hike will add an extra $82 to monthly repayments for a $500,000 loan.

In total, borrowers are now forking out almost $1300 more each month than before interest rates started going up in May last year.

Opposition finance spokeswoman Jane Hume said overseas factors, such as the conflict in the Middle East, were not the only drivers of inflation.

"It's popping up in new areas of the Australian economy and Michele Bullock confirmed that in estimates last week," she told reporters on Tuesday.

"It's baked in and that's because the government took its eye off the ball."

KPMG chief economist Brendan Rynne said the increase to the cash rate was a reasonable move though there were some persuasive arguments to have held off for longer.

The labour market was starting to soften, he said, and the impact of higher interest rates was felt keenly by the poorest in society, who do the least to fuel inflation.

Higher interest rates were going to do little or have no direct influence on demand for goods and services experiencing the fastest inflation, such as petrol, energy and rents, Dr Rynne said.

Australian Associated Press