Cup Day rates blow for mortgage holders

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The Reserve Bank has lifted interest rates for the first time in five months, ratcheting up the official cash rate by a quarter of a percentage point to 4.35 per cent.

New governor Michele Bullock said on Tuesday that inflation was still too high and proving more persistent than expected.

The RBA wants to return inflation to its target band of 2-3 per cent by the end of 2025.Credit: Louie Douvis

“The board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,” she said in a statement after the board meeting.

If passed on in full by banks, Tuesday’s increase will add $101 to monthly repayments on an average $600,000 home loan, according to Canstar. Since the RBA started lifting rates last May, those repayments have already risen by $1461 a month.

The big four banks all expected the RBA to raise rates after a higher than expected 1.2 per cent lift in inflation in the September quarter and strong retail spending figures.

The RBA wants to return inflation to its target band of 2-3 per cent by the end of 2025.

Bullock said returning inflation to target within a reasonable timeframe remained the board’s priority.

“High inflation makes life difficult for everyone and damages the functioning of the economy,” she said.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Inflation, which was 5.4 per cent in the year to September, is expected to fall to 3.5 per cent by the end of 2024 and reach 3 per cent by the end of 2025.

Bullock said the latest inflation data showed that while goods inflation was falling, the price of many services was continuing to rise.

“Since its August meeting, the board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts,” she said.

“The weight of this information suggests that the risk of inflation remaining higher for longer has increased.”

Tuesday’s rate rise was the first since June, when the bank lifted the cash rate by a quarter of a percentage point to 4.1 per cent.

Bullock noted the economy had been more resilient than expected over the first half of the year, with unemployment still low, at 3.6 per cent, and house prices continuing to rise.

She said any further rate rises would depend on new economic data and evolving risks, including developments in the global economy.

Consumer confidence rose slightly ahead of the central bank’s decision, according to ANZ Roy Morgan data, despite expectations it would raise rates.

However, ANZ senior economist Adelaide Timbrell said on a four-week average, consumer confidence was at its worst since August.

“Confidence is still stuck at very weak levels as high inflation and increased interest payments erode households’ ability to save and spend,” she said.

“Confidence is still lowest among those paying off their homes, and the gap slightly widened this week as renter and outright-owner confidence rose, while confidence among those paying off their homes fell.”

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