Australian Official Cash Rate Lifted to 4.35 Percent in November

Two people walk past the Reserve Bank of Australia in Sydney, Australia, on March 7, 2017. (William West/AFP via Getty Images)

The Reserve Bank of Australia (RBA) has raised the official cash rate by 0.25 percent to 4.35 percent in November.

This marks a change in the bank’s fight against inflation after it put the official cash rate on hold for four consecutive months.

The recent rise in inflation risks was the main reason for the board’s decision.

“The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly,” RBA Governor Michele Bullock said in a statement.

“Since its August meeting, the board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts.

“The weight of this information suggests that the risk of inflation remaining higher for longer has increased.”

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According to the Australian Bureau of Statistics, the consumer price index (CPI) rose by 5.4 percent in the 12 months to the September quarter.

And over the September quarter, inflation grew by 1.2 percent, up from 0.8 percent in the previous three months.

A fruit and vegetable shop storekeeper changes the price of bananas in Sydney, Australia, on July 14, 2006. (Ian Waldie/Getty Images)

The most significant price increase was seen in automotive fuel at 7.2 percent, followed by rent at 2.2 percent.

While the RBA predicted that inflation would continue to drop in the future, it said progress appeared to be slower than earlier expected.

The board now expects the CPI to fall to 3.5 percent by the end of 2024 and at the top of the target range of two to three percent by the end of 2025.

The Impact of November Interest Rate Decision

Meanwhile, Graham Cooke, the head of consumer research at the financial comparison website Finder, said the November interest rate decision was a blow to borrowers.

“Mortgage holders are already on the ropes, the last thing they wanted was another slug from the RBA,” he said.

“Aussie’s with a $590,000 (US$380,000) mortgage will now be forking out roughly $1,345 more per month than they were in April last year.

“That’s a huge amount of extra money to be spending on your mortgage, especially when the cost of almost everything else is also going up.”

More Interest Rate Hikes to Come?

As the RBA contemplated inflation and economic data, it found that there were still a lot of uncertainties in the outlook of the Australian economy.

Specifically, the bank was unsure about the lags in the impact of its monetary policy and how companies would change their pricing decisions and employees’ wages in response to slower economic growth.

The bank was also noted the uncertain outlook of household consumption, a major contributor to inflation, and that of the Chinese economy.

Under such complicated conditions, the RBA left open the option for further cash rate hikes in the coming period.

However, it noted that such a decision would depend upon economic data and the evolving assessment of risks.

“The board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market,” Ms. Bullock said.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”