RBA raises rates, again

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The Reserve Bank of Australia (RBA) has lifted the official cash rate by 25 basis points to 6.75% – an 11-year high.   
 
This is the 10th consecutive rate hike since May 2002 and the first rise during an election campaign, and according to Craig James, chief equities economist – CommSec, the housing market will bear the brunt of it.
 
“Today’s rate hike is not just bad news for those repaying home loans, but also those renting,” he said. “The rate hike will further delay recovery in home construction, keeping the rental market super tight and putting upward pressure on rents.
 
“The problem for the Reserve Bank is that higher housing costs will feed back into the inflation rate, pushing it closer to the top of its 2–3% target band.”
 
For those who are still struggling to gain a foothold on the property ladder, there may be a silver lining, however. “Those people that have no mortgage may actually stand to benefit from the latest rate hike as it will push up returns on bank and money market investments,” said James.
 
He also noted that while repayments on the average home loan have gone up by around $50 a week over the last three years as a result of rate hikes, the average after-tax wage has increased by $130 a week during the same period. “Plenty of people will feel worse off after today’s rate hike, but clearly the move needs to be kept in perspective,” he said.
 
James added that the Reserve Bank Board was “painted into a corner and was literally forced by the market to lift rates. We can’t rule out another rate hike in the new year, and we bet the Reserve Bank Board would privately hold the same view. So far, the Reserve Bank has been successful in staring down inflation, but the battle is clearly ongoing.”

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