RBA raises cash rate to 4.10%

By Kyle Robbins 06 June 2023

The Reserve Bank of Australia (RBA) has handed down another divisive cash rate call at its monthly board meeting on Tuesday, 6 June.

RBA spi 2

With economic conditions heading into the decision leading many experts to believe the RBA’s decision was a line ball call, Australia’s central bank opted to lift the cash rate by 25 basis points to 4.10 per cent.

Despite three of Australia’s big four banks earlier this week predicting a rate pause as the most likely outcome of the board’s monthly meeting, the RBA opted to trigger another cash rate increase.

According to PropTrack’s senior economist, Eleanor Creagh, “core inflation pressures remain strong”.

“The latest monthly inflation read indicated an acceleration in inflation momentum,” she said, adding that “this was considered against signs the substantial tightening already pushed through is weighing on economic activity”.

Further to this, the employment market remains tight, with unemployment remaining close to multi-decade lows despite rising in recent months, while “the pipeline of wage increases in the public sector and minimum wage decisions are expected to maintain wages pressure, potentially fuelling inflation to remain elevated”.

“This gave the RBA headroom to further raise the cash rate, reaffirming its commitment to overcome the challenge of high inflation and anchoring inflation expectations,” she said.

While the RBA’s focus remains firmly planted on stemming inflation, LJ Hooker’s head of research, Mathew Tiller, said the board’s latest cash rate hike is unlikely to impact house prices, which have begun climbing in recent months.

Not only that, he believes the decision “shouldn’t lead to a flood of mortgagee repossessions hitting the market”, but he warned that “it is likely there will be home owners looking to downsize their mortgages as a way of managing their household budget”.

Given the plethora of positive property market conditions, including elevated auction clearance rates, rising home prices, and higher open home attendances, Mr Tiller believes the upcoming winter will be a strong selling season.

The expert also explained that rapidly rising household rents are one of the key drivers of persistently high inflation, adding this data “will continue impacting the housing component of the CPI for some time to come”.

Moving forward, and with the RBA expecting it to take a few more years to completely wrangle inflation into its target range, Ms Creagh believes the board’s latest decision indicates its position to “do more to get inflation back down, should it be necessary”.

If interest rates move further in the coming months, she expects the pace of the housing market upswing to slow; however, rising population, tight rental markets, and supply shortages “may see home prices to continue to lift in the months ahead.