- Interest rates move up 25 basis points to 3.35 per cent
- The move was widely predicted
- More rate rises are expected to come
The Reserve Bank of Australia (RBA) has put borrowers under even more pressure, electing to raise the official cash rate (OCR) by a further 0.25 per cent to 3.35 per cent at its February meeting.
The move that was widely expected by the market marks the ninth straight increase from the RBA and takes the OCR to the highest level since September 2012.
RBA Governor Phillip Lowe said in a statement that the Board expects that further increases will be needed over the months ahead to “ensure that inflation returns to target and that this period of high inflation is only temporary”.
“In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” Governor Lowe said.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
RBA Governor, Phillip Lowe
CoreLogic Research Director, Tim Lawless said today’s rise in the cash rate was broadly expected, but the trajectory of interest rates over the coming months remains highly uncertain and is tied to the outlook for inflation, which in itself is shrouded in uncertainty.
“Global inflationary pressures are easing, and domestically, a relatively weak December retail spending result could be the first clear sign that consumers are reigning in their spending,” Mr Lawless said.
“Additionally, the housing component of CPI, which has the largest weight of any sub-group, dropped sharply through the final quarter of 2022, albeit from the highest level since the mid-1990’s.
“Mainstream forecasts for the cash rate reflect the uncertainty around inflation outcomes, ranging from the RBA holding the cash rate at 3.35 per cent, through to another 75 basis points of hikes.
“However, a recent survey from Bloomberg puts the median forecast at 3.6 per cent, implying one more hike of 25 basis points in the wings.”
Impact on property prices
The RBA has been aggressively increasing the cash rate from a low of 0.1 per cent to tackle runaway inflation that has been putting households under extreme pressure.
PropTrack, Director Economic Research, Cameron Kusher said the fastest and most significant interest rate tightening cycle in many decades, will likely put more downward pressure on home prices.
“With borrowing costs continuing to rise and the subsequent reduction in borrowing capacities, property price falls are likely to continue and accelerate in 2023, with the more expensive cities likely to see the largest price falls,” Mr Kusher said.
“Nationally, we are forecasting prices to fall by a further 7 per cent to 10 per cent by the end of this year.
“This forecast is based on the assumption that the cash rate will see a total increase of 50 basis points from its December 2022 level (3.1 per cent).
Mr Kusher said he expects one more rate increase, with the potential for them to be reduced in late 2023 or early 2024.
“We anticipate these further interest rates rises will push prices lower.
“However, a lower interest rate peak and earlier than expected interest rate cuts could ease price falls.”
Director of Mecca Property Group, Abdullah Nouh said he expects the RBA’s latest interest rate increase to continue to weigh on property prices led by Sydney and Melbourne, however, not all markets will be impacted.
“Melbourne and Sydney have the biggest weighted average in Australia, so I expect to see national values fall over the next 12 months,” Mr Nouh said.
“There’s going to be spot fires everywhere, I think the Melbourne market will be most impacted given there’s a lot more supply and the fact that people’s affordability has been hit by these rate rises.
“In Sydney, buyers are still very wary and it’s taking a lot longer to sell properties.
“I still think Queensland, South Australia and Western Australia will hold their value or even grow over the next 12 months given the tight supply and interstate migration numbers.”
Mr Nouh said cities and regions that are still affordable, with good job prospects and strong local economies will see people looking at options in those areas.
“Affordable cities are the ones that will continue to grow.”
Households struggling
Australian Council of Social Service (ACOSS) CEO Dr Cassandra Goldie said that with inflation stabilising and employment slowing, the RBA must pause on further rate hikes to reduce the likelihood of a harsh economic downturn.
“High inflation is a serious challenge for people on low incomes who are already struggling to afford basic necessities such as food and shelter,” Dr Goldie said.
“But hiking up interest rates risks driving up unemployment, making it even harder for those seeking paid work hours.
“Given the effects of last year’s rapid and substantial interest rate hikes are yet to be fully felt, now is the time for the RBA to pause and take stock.
“The government should instead tackle inflation by addressing price rises at their source.”
