The Reserve Bank of Australia (RBA) has raised the cash rate by 0.25 percentage points for the fifth time this year, bringing it to 4.85%. This marks the highest level since November 2008, as the central bank continues its efforts to curb inflation.
PRD chief economist Diaswati Mardiasmo notes that the RBA has lost its patience, given the increasing inflation pattern. The theory is that higher cash rates lead to higher mortgage repayments, which in turn dampens household spending on non-essential items, thereby slowing inflation. However, external factors like the war in the Middle East can complicate this dynamic, as seen with rising fuel prices.
Headline inflation rose to 4.3% in the year to September, up from 4.0% in August. The RBA's preferred measure, trimmed mean inflation, also increased to an annual rate of 3.6%, staying above the target range of 2 to 3% for 14 consecutive months.
The impact of the cash rate increase extends beyond mortgages, affecting savings, term deposits, and other loans. While the timing of future rate cuts remains uncertain, major banks like Westpac, NAB, and Commonwealth Bank predict cuts could begin from August 2027, with ANZ suggesting a later start in November.