RBA lifts rates to highest level in 15 years – risking a sharper slowdown of the economy

The Reserve Bank of Australia has raised the cash rate to 4.6% from 4.35%, marking the highest level since late 2011. This fourth rate hike of the year will add approximately A$120 to the average mortgage of $730,000 per month. The cumulative impact of four rate increases over the year has added about A$480 to the average family’s monthly repayments, which is likely to dampen spending elsewhere in the economy.

The decision comes as inflation remains a significant concern, even though the economy is experiencing a slowdown and the housing market is weak. RBA Governor Michele Bullock stated that inflation is currently above 3%, and the board is prepared to take further action if necessary to bring inflation back to its target range. The RBA emphasized that some of the risks identified in August are now materializing, and the economy is stronger than initially expected in the June quarter.

The higher inflation is attributed to various factors, including global energy price increases, AI-related demand, and domestic pressures such as rising costs for firms. While higher interest rates can help bring inflation under control, they also pose the risk of slowing down the economy. The RBA is now considering whether to raise rates again in November, as indicated by three of the four major banks.