The Reserve Bank of Australia has announced its cash rate decision following higher than expected inflation figures for last quarter.
RBA reveals interest rate decision for Cup Day
The Reserve Bank has decided to increase the cash rate by 25 basis points to 4:35 per cent after CPI result for the September quarter was stronger than expected.
CreditorWatch chief economist Anneke Thompson noted that RBA Governor Michelle Bullock has previously made it clear that she has a low tolerance for accepting higher inflation for any longer than the current outlook suggests.
“Unfortunately, the grim reality is the goods or services that are still recording high levels of inflation are not under any demand pressure, therefore this cash rate rise will have little impact on the prices of rents, fuel, insurance and utilities,” said Ms Thompson.
“Instead, this rise will be most burdensome for those businesses already at the coal face of the fight against inflation, such as the food and beverage, retail trade and construction sectors.”
Ms Thompson said demand in these sectors has already contracted, and higher interest rates will force consumers and potential home builders and renovators to further rethink their future spending decisions.
“Most discretionary retailers will be already accepting stock for the Christmas season, and this cash rate rise will have many of them worried about stock levels and sales over what is usually their busiest period,” she said.
Wealthwithin analyst Dale Gillham agreed that adding another rate rise onto an already stressed economy does not seem warranted given recent economic figures.
University of Sydney associate professor Mark Melatos said inflation could remain elevated above the RBA’s target band for an extended period of time due to the impact of rising rents, geopolitical tensions and the depreciating Australian dollar.
However, Mr Melatos said there was inconclusive evidence to show that monetary tightening was actually having a dampening effect on consumption.
"Moreover, house prices appear to have shrugged off the rate increases to date," he said.