Homeowners hoping for respite on interest rates have little to look forward to, with the Reserve Bank of Australia announcing an increase of 25 basis points to the official cash rate today.
An increase to interest rates is in line with the experts on the RBA Shadow Board at The Australian National University (ANU), which has voted in favour of a sixth successive rise in interest rates for October.
Chair of ANU RBA Shadow Board Dr Timo Henckel said the further monetary tightening is required to reign in Australia’s inflation rate amidst risks to the global economy and falling consumer confidence.
“The RBA Shadow Board strongly advocates in favour of further interest rate increases,” Dr Henckel said.
In its latest vote, the ANU RBA Shadow Board said an increase of 50 basis points was the most appropriate setting – 25 basis points more than the RBA’s official decision today.
According to the ANU experts, this won’t be the last time interest rates rise in the foreseeable future. Dr Henckel said longer-term probabilities that interest rates will continue to rise are also high.
“Six months out, the ANU Shadow RBA’s confidence that the cash rate should remain at the current setting of 2.35 per cent equals zero per cent,” Dr Henckel said.
“While the probability attached to the appropriateness of an interest rate decrease equals 8 per cent, the probability attached to a required increase equals 92 per cent.
“One year out, the recommendations are similar.”
Five months ago, the Reserve Bank of Australia embarked on a tightening cycle after the official cash rate target stood at the historically low level of 0.1 per cent for one-and-a-half years.
Dr Henckel said the Shadow Board’s recommendation comes as many economic indicators remaining strong.
“The labour market is tight, the capacity utilisation rate is high, business confidence is mostly sanguine,” he said. “But there are clear headwinds on the horizon, as recent interest rate rises start restraining spending and global risks reduce external demand.”
Thumbnail: Lannon Harley/ANU
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