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The RBA was ‘too hasty’ in raising interest rates again

The Reserve Bank of Australia (RBA) might have been too hasty in hiking interest rates last month, with the latest inflation data showing inflation slowed down in October.

According to the Australian Bureau of Statistics (ABS), the Consumer Price Index (CPI) rose 4.9 per cent in the 12 months to October 2023, down from 5.6 per cent in September and below the peak of 8.4 per cent in December 2022.

Real Estate Institute of Australia (REIA) President Hayden Groves said it’s time for the RBA to stop lifting interest rates.

“The latest figure continues the downward trajectory in the CPI and is below market expectations of 5.2 per cent, suggesting the RBA may have been hasty in raising interest rates at its November meeting,” Mr Groves said.

“The lagged response to the successive interest rate hikes is showing up in the data and with the CPI having peaked late last year and trending down, it is time for the RBA to stop further increases on interest rates.”

The data showed that the most significant contributors to the annual increase in the October monthly CPI indicator were housing (up 6.1 per cent), food and non-alcoholic beverages (up 5.3 per cent) and transport (up 5.9 per cent).

Mr Groves said while still higher than they would like, the annual increase for housing was lower than the 7.2 per cent increase in September.

“Similarly rents whilst rising by 6.6 per cent in the 12 months to October were lower than the rise of 7.6 per cent in September,” he said.

“This result is largely due to the increase in Commonwealth Rent Assistance that took effect from 20 September 2023 and is something that the REIA has been advocating for to assist eligible tenants.”

All four big banks believe the cash rate will remain unchanged at next Tuesday’s RBA meeting.

CBA, Westpac and ANZ believe the cash rate has now peaked in this current cycle, with NAB the only bank predicting one more hike early in the new year.

Should the Board choose to hike in February, the average borrower with a $500,000 loan at the start of the hikes last May, could end up paying a total of $1286 more a month on their mortgage.

RateCity.com.au Research Director, Sally Tindall, said while the cash rate is likely to remain on hold next Tuesday, this doesn’t mean borrowers should let their hair down over summer.

“Monthly CPI is now moving back in the right direction, but the last two sets of results have shown us just how quickly bumps in the road can spring up,” Ms Tindall said.

“Most households haven’t begun paying for the November rate hike, which is likely to start coming out of their bank accounts from the new year.”

She said the RBA could still plate up another hike at the first meeting of 2024, particularly if it looked like people had let the purse strings go over summer.

“If you’ve got a mortgage, plan for at least one more hike. If it doesn’t happen, then you’ll be able to put that extra cash back into your loan,” she said.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.