RBA raises cash rate by 0.5%, its 4th increase in a row

Australia’s Central Bank pumped the brakes on inflation for the fourth time in a row, increasing the the cash rate target by 50 basis points to 1.85% at the August RBA board meeting.

The increase was widely expected by markets and analysts.

From record low of 0.1% set in 2020 in response to the Covid pandemic, the RBA has now increased the cash rate by 0.25%, 0.5%, 0.5% and 0.5% every monthly meeting since May. They’ve been the first increases in 11 years.

At 1.85%, the cash rate is now at its highest level since May 2016.

A homeowners owing $330,000 will now have to find around $90 more a month on top of $220 in additional repayments since May.

For a $500,000 mortgage, the extra repayments will be around $140 a month on top of $335 extra to extra repayments from previous increases.

With inflation currently at its highest level since the early 1990s at 6.1% over the year to the June quarter; and at 4.9% in underlying terms,RBA Governor Philip Lowe said that has getting inflation back into the the 2–3% range remained a high priority.

“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,” he said.

“The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine and the COVID containment measures in China.”

Inflation is expected to peak later this year, with the RBA’s central forecast at 7.75% over 2022, a little above 4% over 2023 and around 3% over 2024.

The Bank’s central forecast is for GDP growth of 3.25% over 2022 and 1.75% in each of the following two years.

“The Australian economy is expected to continue to grow strongly this year, with the pace of growth then slowing,” Lowe said in his statement.

“Employment is growing strongly, consumer spending has been resilient and an upswing in business investment is underway. National income is also being boosted by a rise in the terms of trade, which are at a record high. The labour market remains tighter than it has been for many years.”

But the behaviour of household spending remains a “key source of uncertainty” Lowe said, adding that “the current round of increases has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy”, flagging additional rate rises ahead.