The Reserve Bank of Australia raises interest rates by 0.25% in November, bringing the cash rate to 4.35%.

After maintaining the interest rate unchanged for four consecutive meetings, the Reserve Bank of Australia decided this Tuesday to raise the cash rate target by 0.25 percentage points to 4.35%.

This latest hike is part of a series of increases that began in May 2022, moving the cash rate from a record low of 0.1% to the highest level since November 2011.

Reserve Bank Governor Michele Bullock warned in a post-meeting statement that the current rate hike may not be the last. She noted that further tightening of monetary policy would depend on upcoming economic data and the evolving risk assessment to ensure inflation returns to the target level within a reasonable timeframe. Her comments have been interpreted by the market as a more neutral stance on future interest rate trajectories.

Luci Ellis, the former Assistant Governor of the RBA and current Chief Economist at Westpac Bank, predicts that the RBA will not raise rates again in December, suggesting that while the RBA board is reluctant to increase rates further, they are prepared to act if economic conditions change.

Analysts like Abhijit Surya from Capital Economics believe that the discussion may soon shift to rate cuts. If their predictions of an impending economic downturn in Australia are correct, rate cuts could be on the agenda as early as the second quarter of 2024 (April to June).

The recent rate increase means that the monthly repayment on a $500,000 mortgage will rise by approximately $76, bringing the total increase in monthly payments to over $1,200 since the RBA began raising rates, a 52% hike. Despite this, Sally Tindall from RateCity points out that ordinary borrowers have managed to secure more competitive rates through refinancing, which has somewhat cushioned the blow of rising rates.

In her statement, Bullock acknowledged the uneven burden society bears from rising rates, posing risks to the economic outlook. She raised concerns about uncertainties in the labor market, the lagging effects of monetary policy, and how businesses will adjust their pricing and wage strategies in response to slowing economic growth. The outlook for household consumption remains uncertain as well, with many families feeling the pinch of financial tightening, while others benefit from rising house prices, savings buffers, and higher interest income.

Rachel Wastell from the financial website Mozo noted that a survey of over 2,000 people found that 57% would face financial stress if mortgage rates reached 6% or higher. She warned that if the 25-basis-point hike is fully passed on by all lending institutions, the average variable rate across all institutions could reach 6.87%, with the average rate for the big four banks potentially climbing to 7.46%.

Data indicates that borrowers who have already been paying rates starting at 6% are under pressure, and an additional rate hike of 0.25 percentage points by banks could push them to the brink of financial collapse.

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