RBA slows down the pace with a 25 basis point increase in October

The 25 basis point hike marks 250 basis points’ worth of tightening to the cash rate since May.

For homeowners with an average sized mortgage, a 30-year 3.00% p.a. interest rate increasing to 5.5% p.a. over the past six months means paying an extra $861 in monthly interest costs.

The increase to the cash rate comes as a shock to economists, with many expecting the RBA to hike by another 50 basis points in October, although some were open to the possibility of a smaller increase.

PropTrack Senior Economist Eleanor Creagh said the fastest rise to the cash rate since 1994 has seen home prices falling across the country, with prices nationally now sitting 3.35% below their March peak.

“Today’s rate hike will further increase borrowing costs and reduce maximum borrowing capacities, pushing property prices further down,” Ms Creagh said.

“Outside of the housing market, the economy has entered the tightening cycle with strong momentum and although consumer confidence has fallen, the labour market remains tight, the unemployment rate is at a 48-year low, spending is yet to slow, and business conditions remain strong.

“However, the lagged effect of rate rises, large share of variable rate borrowers ahead on repayments and borrowers on fixed terms yet to expire, means many mortgage holders are only now beginning to feel the impact of the initial rises.”

While more rate hikes are expected in the coming months, Ms Creagh predicts the RBA will steady the pace of tightening to a more measured pace. 

PRD Chief Economist Dr Asti Mardiasmo said if previous history is any indication, this could be the last consecutive cash rate increase by the RBA.

“The RBA has a historical pattern of six to seven successive cash rates in past occasions, before holding it steady for a period of time to see how it translates into the economy,” Dr Mardiasmo told Savings.com.au.

“If they increase today that makes it six increases in total so by the RBA historical pattern, we might see a break November onwards, which of course is in time for the Christmas retail period.”

CommBank Head of Australian Economics Gareth Aird echoed a similar sentiment.

“Provided the RBA pauses for at least a few months, when the cash rate is 2.60% or 2.85%, the data will show there is no need to continue to take the policy rate higher," Mr Aird said. 

"The Australian economy is largely in the RBA's hands."

CommBank economists have previously tipped the RBA to cut the cash rate from a peak of 2.60% starting in late 2023, while Westpac and ANZ now expect a peak above 3% with cash rate cuts by mid-2024.

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