The Reserve Bank of Australia (RBA) has resumed its interest rate hiking cycle, raising rates by 25 basis points to 4.35%.
This move comes after a period of reprieve, with rates remaining unchanged for the four preceding consecutive months.
The bank’s move drew mixed reactions from analysts, pointing to a complex economic landscape as Australia navigates a path to level inflation.
Sticky inflation
eToro market analyst Josh Gilbert looked to key factors behind the decision:
"After 400 basis points of hikes, the board felt that inflation still wasn’t on the desired trajectory. Alongside the trifecta of sticky underlying inflation, hotter-than-expected retail sales, and unemployment remaining near record lows, swelling house prices and an increase in overseas migration putting pressure on inflation were the finishing touches."
But Gilbert also pointed out a notable shift in the central bank's language: "The shift in language from ‘some further tightening of monetary policy may be required’ to ‘whether further tightening of monetary policy is required’ could be taken as dovish and may signal that the board feels this is a final ‘insurance’ hike in this cycle."
Gilbert also noted the impact on households but mentioned some relief due to falling oil prices, which may alleviate consumer expenses in the near term.
Janus Henderson fixed interest strategist - Macroeconomics Emma Lawson emphasised the RBA's concerns about rapidly rising services prices. "The RBA raised the cash rate 25 basis points, as expected to 4.35%. They are concerned about services prices rising more briskly than they had expected and proving stickier than they feel comfortable with."
Lawson believes that the RBA's future actions will depend on data, especially inflation.
"We are near the end of the cycle, and another hike continues to be dependent on the data flow, inflation in particular."
Diolog founder and CEO Amy Benson reflected on the impact of the rate hike on retail investors. "Today’s decision by the RBA to raise the cash rate comes as no surprise following the upward trend of the consumer price index results over recent months."
She highlighted the need for ASX companies to consider the impact on investors and foster confidence among retail investors during these challenging economic conditions.
News good for retirees
LocalAgentFinder CEO Richard Stevens pointed out the implications for retirees and mortgage holders. "Retirees are currently seeing some of the best returns on their savings in years, which is great news for this group of Australians."
However, he expressed concerns about mortgage holders who may be reaching their financial limits due to rising interest rates, potentially affecting the property market and buyer confidence.
Dr Dwyfor Evans, head of APAC Macro Strategy at State Street (NYSE:STT) Global Markets, analysed the RBA's decision in the context of higher-than-expected CPI prints and a strong labour market.
“The recent higher-than-expected CPI prints clearly swayed the decision towards another hike.
“The focus on a four-handle jobless rate also alludes to a continued strong labour market, which is important to the extent that it offsets fears of higher debt servicing costs given the propensity towards variable rates in Australia.
“It should also underpin consumer spending. A muted reaction, which reflects the bias towards expectations of a hike over recent days.”
Sell up before prices soften
Shiv Nair, director of Ray White TNG-Glenwood in Sydney, advised property owners to consider selling before further rate increases potentially softened buyer confidence.
He noted a surge in investment property sales as owners secure their primary residences and choose to liquidate investments while conditions are favourable.