RBA rates decision: Major call on interest rates after RBA board meeting

Australia’s Reserve Bank has resumed hiking the cash rate, defying the majority of the big four banks expecting a pause.

The RBA met on Tuesday to hike the cash rate by basis points to 3.85 per cent.

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That marks the highest level since April 2012.

The hikes mean the average borrower with a $500,000 loan with 25 years remaining will see an increase of roughly $78 to their monthly repayments.

RBA Governor Philip Lowe said inflation in Australia had “passed its peak” but was still too high.

“It will be some time yet before it is back in the target range,” he said in a statement on Tuesday.

“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.”

Lowe hinted that further rises weren’t being ruled out, adding the board will “continue to pay close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market”.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” he said.

Three of the big four banks predicted ahead of Tuesday’s decision that the cash rate would be paused.

Commonwealth Bank was the only one to predict a 25 basis point increase.

PropTrack Senior Economist Eleanor Creagh said inflation “remains elevated and is well above the Reserve Bank’s 2-3 per cent target range”.

The annual inflation rate, which is the key driver behind the RBA’s decisions, was reported last week as being 7 per cent.

“Together with the lift in employment seen in the most recent update on the labour force, the labour market remains tight. This gave the RBA headroom to further raise the cash rate,” Creagh said.

“Whilst a further pause was considered, concerns around inflation expectations remain anchored and the board’s commitment to overcome the challenge of persistently high inflation saw the cash rate increased by 25 basis points.”