RBA Increases Cash Rate Target by 25 Basis Points to 4.60%

The Reserve Bank of Australia's Monetary Policy Board has decided to increase the cash rate target by 25 basis points to 4.60 per cent. This marks the third increase in the cash rate target since the beginning of the year as the Board seeks to ensure elevated inflation returns to target.

What the RBA said

The Board noted that several upside risks to inflation flagged in August are now materialising. Domestic inflation outcomes were stronger than expected, and capacity pressures continue to push up costs for Australian businesses, leading many to raise their prices.

Global developments are also contributing to higher price pressures. Disruptions to global oil supplies linked to the conflict in the Middle East have driven energy prices higher, while rapid demand for artificial intelligence technology is pushing up prices for tech-related goods.

While output growth has slowed, economic activity in the June quarter was slightly stronger than expected. Labour market conditions have eased broadly as expected, but weak productivity growth continues to constrain potential growth across the domestic economy.

What this means for mortgage holders

The official cash rate target serves as a benchmark for borrowing costs across the Australian financial system. Commercial banks and mortgage lenders set their own interest rates and decide how and when to pass on cash rate adjustments to their variable-rate home loan customers.

Following a decision by the Board to tighten financial conditions, lenders typically evaluate their funding costs and interest rate settings across their home loan products. Any changes to variable mortgage rates are made at the discretion of individual credit providers.

The central bank highlighted several current trends in the property market alongside its rate decision: - Housing prices have fallen in most capital cities. - New housing loan activity has declined noticeably. - Business investment and business debt growth remain strong.

What to watch next

The Board confirmed that today's policy decision was unanimous and emphasised its commitment to returning inflation to target. To achieve this, the Board noted that aggregate demand will need to remain subdued for a period to reduce domestic capacity pressures.

The central bank will continue to monitor economic data, international events, and risk assessments to guide future choices. The Board stated it will do what is necessary to deliver price stability, including increasing the cash rate target further if required.

You can check with your lender or mortgage broker to see what this cash rate decision means for your home loan.