Is Another RBA Rate Hike on the Horizon After Lifting Rates to a 12-year High?

The Reserve Bank of Australia resumed raising interest rateson Tuesday in a widely anticipated move, while signaling a higher hurdle to further policy tightening.

The RBA raised the cash rate to a 12-year high of 4.35%, while slightly revising up its inflation forecast to 3.5% by the end of 2024 and edging down its peak unemployment prediction to 4.25%, underscoring the resilience in the broader economy to the central bank's tightening so far.

The bank has lifted the cash rate on 13 occasions from May last year, totaling an increase of 425 basis points, marking the largest rise during the shortest period in 40 years.

A hike had seemed possible since consumer price inflation topped forecasts in the third quarter to run at 5.4% annually, well above the RBA's long-term target range of 2-3%.

Although the RBA had previously expected its rate hikes to slow the economy enough that the jobless rate would gradually increase to 4.5% over the next 18 months, they now believe that unemployment will only go up to 4.25%. This quarter of a percentage point equates to almost 30,000 additional people holding down a job.

The average borrower with a $500,00 debt at the start of the hikes will have an extra $76 added to their monthly mortgage repayments, thanks to today's rate hike. This means an extra $1,210 a month since the cycle of hikes began.

Higher interest rates have also caused a sharp decline in how much money households can borrow to buy a home.

A family with two children and a household income of $150,000 have seen their borrowing power fall by 28% to $623,400 since May 2022, according to comparison site Compare the Market.

While Bullock's statement leaves open the door to future rate rises, the language has been tempered. Now, another rate rise will be "whether" upcoming data on the economy such as inflation is in line with expectations. Last month, "some further tightening" of rates may have been required.

Meanwhile, traders have already accounted for another increase by February next year, the RBA stands alongside the Bank of Japan as the only G7 central banks where markets have locked in forecasts of further rate rises.

Elsewhere, traders are pricing in rate cuts rather than increases as central banks make inroads into reducing inflation.

AMP chief economist Shane Oliver said high levels of household debt meant the RBA had acted more cautiously than other central banks, leading to the current divergence between rate expectations locally and abroad.

Macroeconomics Advisory chief economist Stephen Anthony said expectations of further rate increases showed the RBA was behind the curve, and more moves higher were necessary to get inflation back to the central bank's 2 to 3% target.