Reserve Bank governor Michele Bullock has raised the cash rate to 4.85%, the fifth increase this year, acknowledging that the decision will be unwelcome news for Australians. Speaking to media after the announcement, Bullock emphasized that inflation disproportionately affects the most vulnerable, stating, "When most of your income is already going towards essentials, there is nowhere left to cut spending. That is why getting inflation down matters so much."
The cash rate now stands at its highest level since November 2008. Bullock addressed concerns about potential recession, asserting that the central bank is not forecasting one but expects growth to slow significantly. The Reserve Bank now predicts inflation will not return to its target range of 2-3% until mid-2028. The decision to raise rates was supported by six board members, while three voted to maintain the previous rate of 4.6%.
Economists and major banks had widely anticipated the rate hike, citing recent inflation data showing a 4.3% increase in the consumer price index, driven by construction, electricity, and petrol prices. The impact on property markets is expected to be significant, with lenders likely passing on increased interest costs to buyers, further constraining borrowing capacity. Mathew Tiller of LJ Hooker noted that while some buyers may reduce their budgets or delay plans, demand for suitable properties may persist in areas with limited stock.
Bullock also addressed the decline in property investors, attributing it not just to interest rate hikes but also to recent tax reforms. She stated, "The fact that investors has declined so much further than it has in previous interest rate increasing cycles suggests that there's something else going on here. And the something else going on is the tax changes."