RBA lifts interest rates to 4.35%

After keeping rates on hold for four months, the Reserve Bank has increased the official interest rate by 0.25%, delivering fresh cost of living pain for Aussies.

The rise, which is expected to be passed on in full by the major banks, will add

$15 to repayments for every $100,000 borrowed for those with a variable home loan.

The rate rise – which was the first for four months – was expected by the majority of economists with 32 of the 45 economists surveyed by Finder and 33 out of 35 economists surveyed by The Australian Financial Review forecasting an increase.

Bendigo and Adelaide Bank chief economist David Robertson is among many economists tipping a rate rise later today.

Bendigo and Adelaide Bank chief economist David Robertson told news.com.au that the RBA has “little choice” but to lift interest rates, based on recent economic data.

Mr Robertson said stronger than forecast quarterly inflation and monthly retail sales figures, coupled with low unemployment, meant that he “couldn’t see how the RBA could look at all of that and not go”.

The inflation and retail sales data indicates that Australians are still spending, despite the financial pain of the past year, and pose a challenge to the RBA’s goal of returning inflation to between two and three per cent by late 2025.

As of September 30, the headline annual inflation rate in Australia was 5.4 per cent and RBA governor Michele Bullock has previously indicated that the Bank would not tolerate persistently high inflation.

During a speech in October she said: “The Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.

In a fresh blow for Aussie mortgage holders, Mr Robertson is forecasting that today’s interest rate rise won’t be the last in the current cycle, as getting inflation under control is “non-negotiable”.

He told news.com.au that the RBA is unlikely to increase rates at its last board meeting for 2023 on December 5, but that one more rate rise could come in February, at its first meeting for 2024.

This would follow the release of the next quarterly inflation data in late January.

Mr Robertson added that if inflation data from the next quarter doesn’t warrant a February rate rise, Aussies may still not be out of the woods, with the possibility of a rise in May following inflation data for the first quarter of 2024.

“History shows us – from the 70s and 80s – how difficult it is for a central bank to douse the flames of inflation,” he said.

“But history also shows us how damaging inflation can be.”

Interest rates are expected to plateau for an extended period of time before falling, with a peak like Cape Town’s Table Mountain.

Along with many leading economists, Mr Robertson is predicting interest rates will remain higher for longer and not fall until 2025.

It’s a scenario commonly referred to as ‘more Table Mountain than Mt Everest’ in economic circles, in reference to Table Mountain’s long, flat plateaued top which contrasts with the sharp up and down of Mt Everest.