The Reserve Bank has raised the official cash rate by 0.25 percentage points to 4.85% after its November meeting. It’s the fifth increase this year, and rates are now at their highest level in 18 years. Markets had seen this coming. On the eve of the meeting, pricing put the chance of a rise at about 80%.
Why the RBA moved...
Inflation is heading the wrong way. September figures showed annual inflation at 4.3%, up from 4.0% in August. The RBA’s main concern isn’t only today’s prices but what happens if businesses and households start expecting high inflation to stick. Once that expectation sets in, it’s much harder to undo.
The trade-off...
The difficulty is that the economy is already slowing and the housing market is softening. HSBC’s Paul Bloxham described the hike as reluctant but necessary, and warned it is likely to push the economy further into a downswing. The ACTU, led by Secretary Melissa Donnelly, opposed the move, arguing that households are already stretched and that jobs are at risk.
What happens next?
Most observers expect a pause. CreditorWatch’s Ivan Colhoun expects the RBA to hold rates in December, and possibly into the new year, while it weighs the effect of five increases in twelve months.
What this means for you...
Borrowers: expect your lender to pass on the increase within weeks. Now is a good time to check your repayments and any offset balances.
Savers and retirees: higher rates are good news for cash and term deposit returns. It’s worth checking that your cash is earning a competitive rate.
Investors: rate rises can unsettle share and property markets in the short term. That’s a reason to review your plan, not abandon it.
Rick Maggi, Financial Advisor (Perth), Westmount Financial
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Disclaimer
This article has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.