ResidentialTaryn ParisTue 29 Sep 26
Reserve Bank Rate Rise to 4.6pc Rocks Recovery Hopes
The Reserve Bank of Australia has delivered its fourth rate hike this year, lifting the cash rate target by 25 basis points to 4.6 per cent.
The move more than reverses last year’s cutting cycle and takes the benchmark rate to its highest level since late 2011.
This week’s decision was unanimous.
In its statement, the Monetary Policy Board said some of the upside risks to inflation flagged in August were now materialising.
It pointed to a broadening conflict in the Middle East, with global energy prices now much higher than assumed in the August forecasts.
Higher fuel prices have partly flowed through to other goods and services.
Firms report rising cost pressures and are lifting prices or looking to; short-term inflation expectations remain elevated, and recent inflation outcomes were stronger than expected at the previous meeting.
The Board said aggregate demand growth needed to remain subdued for a period to ease capacity pressures and bring inflation back to target.
It said that the three earlier rate increases this year have tightened financial conditions and that the economy appears to be slowing, but inflation was still too high.
The RBA also said housing prices had fallen in most capital cities and new housing loans had declined noticeably.
It flagged uncertainty about the economic effects of the housing downturn, and said weak productivity growth continues to constrain potential growth.
Recovery pushed out
Oliver Hume chief property economist Matthew Bell said the decision significantly changed the property outlook.
Markets had largely priced in a September move, he said, but only a month earlier a further rise was viewed as a 50 per cent chance.
Bell said rate changes could affect property markets up to six to nine months out, meaning any recovery has probably been pushed to mid-2027 at the earliest.
But he said some markets would return to growth before then.
“As always, the fundamentals haven’t changed,” Bell said.
“Demand exceeds supply in most markets and household budgets remain in good shape, although weaker after today’s decision.
“But this won’t be enough to bring buyers back to the table until households can be sure their borrowing capacity and mortgage payments won’t rise further.”
Builders warn on supply
For the Housing Industry Association, the hike lands squarely on new supply.
HIA senior economist Tom Devitt said the increase “will further reduce the number of new homes Australia builds at the time when increased supply is the only sustainable solution to the affordability challenge”.
Higher rates are cutting both households’ capacity to buy and the volume of homes the industry builds, he said. New home sales have fallen for four consecutive months to August, down almost 20 per cent for the quarter.
Devitt said rates and tax increases would likely reduce the number of new homes that would otherwise have been built, without reducing the number of households seeking accommodation.
He said it’s possible Australia will see falling home prices, falling new home construction and worsening affordability at the same time.
He called on all three tiers of government to act, arguing that if rates stay restrictive, governments can’t leave the structural costs of producing housing untouched and still expect to build 1.2 million homes.
“If government taxes on housing are left untouched, then monetary settings will reduce the supply of housing today while inadvertently reducing housing affordability for future first home buyers,” he said.
The RBA Board left the door open to more rate hikes. The Board said it wiould continue to do what it considered necessary to bring inflation sustainably back to target, “including increasing the cash rate target further if needed”.
Bell said November remains a live meeting, with plenty of forecasters expecting another hike, but the outcome will depend heavily on the next few inflation and labour market prints.
