No 'Santa-Pause' - RBA delivers pre-Christmas rate rise...

The Reserve Bank of Australia (RBA) has announced another 25 basis point (bp) rate hike, taking the official interest rate to 3.1 per cent.

Despite the widely unexpected inflation slowdown in October, the RBA has opted for another cash rate hike taking interest rates to their highest level in over a decade.

While a number of economists believed that the RBA would give consideration to a ‘Santa pause’ at its final policy meeting of the year, an increase of 25 bps was still seen as the most likely scenario.

Commenting on the RBA’s eight consecutive rate hike, Anneke Thompson, chief economist at CreditorWatch, said: “Today’s decision by the RBA to further raise the cash rate will place undeniable financial pressure on Australian households”.

“Combined with the budget’s forecast rising prices on everyday goods, housing and energy, and lacklustre wages growth, this latest increase in the cash rate all but guarantees consumer confidence will weaken as we enter the busy Christmas retail period,” Ms Thompson said.

She noted that data and forecasts released in the latter half of October all point to difficult economic conditions in 2023.

“It is likely given all signs are pointing to a weakening economy, that the RBA will take slower steps in tightening monetary policy, as they try to avoid sending Australia in to recession”.

Prior to the RBA’s last meeting for the year, AMP’s Shane Oliver noted that still high inflation, strong jobs and wages data and the absence of an RBA meeting in January are likely to drive another 0.25 per cent hike.

Acknowledging the risk of one more hike to 3.35 per cent in February, Dr Oliver said that by end 2023 “we expect weak growth and a sharp fall in inflation to drive the start of rate cuts”.