RBA hands down first FY23 cash rate decision

It follows last month’s 0.5 per cent hike from 0.35 per cent to 0.85 per cent — which set the tone for a higher rate environment for the remainder of 2022.

CreditorWatch chief economist Anneke Thompson called the announcement “unsurprising”, pointing to recent comments from both governor Philip Lowe and Federal Treasurer Jim Chalmers that inflation is likely to be around 7 per cent by year’s end.

From her perspective, the RBA is “probably beyond taking a ‘wait and see’ approach to the impact of their cash rate rises and will need to continue raising rates until they get comfortable that inflation is starting to move down”.

Highlighting that the housing market has already been impacted by cash rate increases, Ms Thompson said the RBA would be monitoring house price movements “closely”.

“Australian homeowners are heavily impacted by the ‘wealth effect’. Coupled with a falling share market, for those with investment portfolios, this has a surprisingly large negative impact on consumer sentiment,” she noted.

PropTrack senior economist Eleanor Creagh has also weighed in on today’s board meeting outcome, also noting that home price growth has slowed Australia-wide across June.

She cited higher mortgage rates, lower lending ceilings, and the prospect of further rate hikes as leading to “a lot more uncertainty around future borrowing costs than those over the past two years”.

“This is being reflected in the housing market – buyer demand is moderating, auction volumes and clearance rates have fallen and sales volumes have also slipped, along with falling prices,” she outlined.

She called today’s rate decision a reaffirmation of the board’s determination to “get ahead of the curve”.

“This is a rapid policy tightening and whilst high household debt and weak sentiment is a risk, these factors are offset by the tight labour market, promoting a degree of confidence and job security and hopefully, in turn, stronger wages growth,” she said.

Ms Creagh also highlighted that many households are sitting on large savings buffers: “For many homeowners, substantial home equity has been accumulated after the significant rise in home prices over the last two years, and some have taken advantage of falling interest rates to pay down debt quicker.”

Looking ahead, the economist noted that “market pricing as of yesterday’s close implies a cash rate of 3 per cent by December this year”.

“Though the RBA have signaled a desire to ‘get ahead of the curve’, it’s likely the cash rate ends the year closer to 2 per cent than 3 per cent,” she said.