• Analysis
RBA interest rates: economists read dovish split vote as 4.85% cash rate hike stands
The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.85% at its Tuesday board meeting, the fifth interest rate rise this calendar year, and some economists now believe the run of RBA interest rates increases could be over for a while.
A dovish statement, economists say
The 25 basis point rise to 4.85% was accompanied by a statement that several economists chose to read as soft rather than hawkish. UBS economists described the decision as clearly dovish, while Anthony Malouf, an economist at Ebury, pointed to an absence of a clear tightening bias in the board's language. Some economists and currency traders went further, suggesting this could be the last hike of the cycle at least for a while - a view that could change if inflation proves persistent.
With household budgets already feeling the strain, today's decision by the RBA will be challenging for many Australians.
That line came from Ben Perham, head of personal banking at Macquarie, who also noted his bank again waited more than two weeks before letting the increase take effect.
The board itself justified the move in firmer terms, saying that given the revised inflation outlook and continuing upside risks, it judged that a further tightening in financial conditions was warranted.
The split vote behind the rise
The decision was not unanimous. Six members of the board voted to raise the cash rate and three voted to leave it unchanged, at the end of a two-day monetary policy meeting on Tuesday. It was the fifth interest rate rise of the calendar year.
Governor Michele Bullock explained what drove the dissenters:
- •They saw potential downside risks to the economy, including rising unemployment and housing weakness.
- •They wanted more data, particularly since four interest rate rises had already been delivered.
Bullock cautioned against drawing conclusions from the split. She said the decision shouldn't be interpreted as a sign the RBA won't raise further if inflation risks materialise.
Bullock: painful but necessary
Speaking in Sydney in opening remarks to journalists ahead of questions, Bullock conceded the increase is not the news many Australians want to hear. She called the decision painful but necessary to bring inflation down, arguing that some pain now will prevent even worse pain down the track.
some pain now will prevent even worse pain down the track
She acknowledged the burden falls unevenly. High inflation is particularly painful for Australians on lower incomes, including people who rent and have little or no savings, with all households paying more for essentials.
On the economy, Bullock pushed back against talk of recession. She said the central forecasts do not see the economy going into recession, though growth slows quite markedly and consumption remains sluggish. People may nonetheless feel as if it is a recession because they feel poorer, she said.
She also flagged an inflation risk from high oil prices: if businesses lift their own prices ahead of anticipated rising costs, a self-fulfilling loop could entrench inflation. Asked whether rates would have risen by the same amount had the US and Israel not struck Iran, she said Australia has an excess demand problem but could not say what size the increase would otherwise have been.
On the government's criticisms, Bullock said independence is a two-way street: she does not tell the government what to do with fiscal policy, and it does not tell her what to do with interest rates.
Markets and banks react
Equities took the decision in their stride. The S&P/ASX200 rose 30.3 points, or 0.3%, to 8886.8, and the broader All Ordinaries gained 31.7 points, or 0.4%, to 9008.9. The Australian dollar moved the other way, buying 69.77 US cents, down from 70.21 US cents at 5pm on Monday.
Treasurer Jim Chalmers called the widely expected decision difficult news for many Australians already paying a hefty price for circumstances outside their control, and said the Middle East war, in its ninth month, is putting sustained upward pressure on inflation while weighing on growth. Finance minister Katy Gallagher said the parliament is refusing to pass government savings measures, and that the government's policy decisions line contributed positively to the budget in the last two updates.
For borrowers, the rise is already flowing through: Macquarie Bank said it will increase variable home loan rates by 0.25%, effective 19 November, along with a 0.25% lift to transaction and savings account rates. Bullock, for her part, left the door open to more moves should inflation risks materialise.
