Reserve Bank lifts cash rate to 12-year high


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Homeowners with a mortgage will be bracing themselves for higher repayments following the RBA's move to increase rates by 25 basis points.

It may be Melbourne Cup Day, but it's fair to say that the attention of many households will have been on rates instead of racing this afternoon.

Homeowners with a mortgage won't have got the result they were hoping for though.

rba increases cash rate to 4.35% at november 2023 meeting

After five months of stability the Reserve Bank Board lifted the official cash rate by 25 basis points to 4.35% at its monthly monetary policy meeting - the highest the cash rate has been since November 2011.

Inflation proving persistent

In her post-meeting statement, RBA governor Michele Bullock indicated that the board's decision was driven by concerns about the stickiness of inflation and its desire to see inflation come back down to its target range in a timely manner.

"Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.

"While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025.

"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."

While mortgage holders won't be happy with the decision, the move will likely please those at the International Monetary Fund which raised concerns in a statement released last week about the danger of inflation remaining higher than desirable for longer in Australia.

"Although inflation is gradually declining, it remains significantly above the RBA's target and output remains above potential.

"Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimize the risk of de-anchoring inflation expectations."

How will the rate rise affect mortgages?

While many Australians with a home loan will have already reined in their spending as a result of the previous 12 interest rate increases, today's decision will likely see belts tightened even further if lenders pass on the hike - an outcome which is a pretty safe bet.

And for good reason. According to Mozo money expert Rachel Wastell, plenty of borrowers will have seen their monthly repayments shoot up by more than $1,000 since May 2022.

"If lenders were to pass on a 0.25% rate hike in full to borrowers, this could see homeowners with a $500,000 home loan scrambling to find $1100 a month more than they were before the hikes began."

There could be an opportunity for some mortgage customers in a position to refinance their loans and cut their repayments though.

"According to the Mozo database, the current average Big Four variable rate is 7.20% while the average variable rate across all lenders is 6.62%," says Wastell.

"Considering 73% of the owner-occupier home loan market is with a Big Four bank, there does appear to be an opportunity for borrowers struggling to meet those rising repayments to refinance their home loan and get a little more breathing room.

"So, if you're struggling with rising mortgage repayments, the key is to check your current rate and compare this to what's on offer in the market, to see if you can get a better rate."

The Reserve Bank Board will meet for its next monetary policy meeting on December 5 - the last meeting of 2023.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.