The RBA has been forced to take action due to high inflation rates globally, although there is a positive outlook for business investment, many businesses still struggle with labour shortages, and employment is expected to slow down as economic growth decreases.
Moreover, the rise in interest rates is also increasing household spending, which could potentially lead to uncertainty in the market.
RBA increases cash rate target to 3.60%, the highest since May 2012
The rise in interest rates is increasing household spending
Global inflation rates remain high
Business investment outlook is positive
Labour shortages and unemployment will continue to be a challenge
The decision has already resulted in an increase in mortgage repayments, which for a $500,000 variable rate owner-occupier mortgage, would add roughly $160 per month.
Since the cycle of rate hikes began in May, mortgage repayments on a $500,000 home loan have increased by just over $1,000 per month for owner-occupiers.
This increase could potentially affect buyers’ budgets, especially those with lower incomes, and make it difficult for first-time buyers to enter the property market.
However, there is some positive news for the property market. The increase in interest rates is expected to cause a moderate decline in goods price inflation due to softer demand in Australia and global developments.
Additionally, the outlook for business investment remains positive, which could lead to an increase in employment opportunities and have a positive impact on the property market.
The labour market in Australia remains tight, with the unemployment rate close to a 50-year low. However, the Board has predicted that unemployment is expected to increase as economic growth slows down.
The recent cash rate increase is likely to make it more difficult for businesses to hire workers as they will face higher costs to finance their operations. The Board remains alert to the risk of a prices-wages spiral, given the limited spare capacity in the economy and the historically low rate of unemployment.
Global inflation rates remain high, which has led to the RBA’s decision to increase the cash rate target. Inflation is expected to decline this year and the next, to be around 3 per cent in mid-2025. However, it will be some time before inflation is back to target rates.
The Board recognizes that monetary policy operates with a lag, and there is uncertainty around the timing and extent of the slowdown in household spending.
High inflation makes life difficult for people and damages the functioning of the economy. It is important that inflation returns to target to avoid it becoming entrenched in people’s expectations, which would be very costly to reduce later.
The Australian property market has been affected by the RBA’s recent decision to increase the cash rate target, which is the highest level since May 2012.
The increase in interest rates has led to higher mortgage repayments, which could potentially affect buyers’ budgets, especially those with lower incomes, and make it difficult for first-time buyers to enter the property market.
However, there is positive news for the property market, with a positive outlook for business investment, which could lead to an increase in employment opportunities. The labour market remains tight, and the Board is alert to the risk of a prices-wages spiral.
Finally, global inflation rates remain high, which has led to the RBA’s decision to increase the cash rate target, and it will be some time before inflation returns to target rates.
Overall, the Australian economy is facing challenges but also opportunities, and it will be important to monitor developments in the labour market, inflation, and the property market.
Sources: RBA.gov.au, CoreLogic
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