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RBA announces August rate rise

Business

Official interest rate goes up for the fourth consecutive month.

By Miranda Brownlee3 minute read

The RBA has decided to increase the cash rate target for the fourth month in a row, raising it by 50 basis points to 1.85 per cent.

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This follows an increase of 50 basis points in both June and July, as well a 25 basis points increase in May.

KPMG partner and senior economist Sarah Hunter said data has continued to indicate that momentum in the economy was strong through the second quarter, with the labour market tightening further and anecdotal evidence continuing to emerge of strengthening wages growth.

“Against this backdrop, both Governor [Philip] Lowe and Deputy Governor [Michele] Bullock have signalled in recent speeches that they expect the board to continue raising the cash rate to a significantly higher level than it is at the moment,” Ms Hunter said.

Laing+Simmons chief executive Leanne Pilkington said the expectation is that rates could be around the 3 per cent mark by year’s end.

“The market is looking for some degree of certainty in this area and this includes property buyers and sellers who typically become more active in spring,” said Ms Pilkington.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake noted that RBA communications have emphasised their commitment to tackling inflation.

“Moreover, they have expressed the view that households are relatively well-placed to bear the burden of higher interest rates,” said Mr Langcake.

“Taken together, we see more rate hikes before the RBA pause to assess how the economy is responding to higher rates."

Wealth Within chief analyst Dale Gillham said the RBA seem “hell-bent on pushing the interest rates up to what they consider to be normal as fast as they can”.

“They seem to want to incrementally raise them until they get to where they want them, rather than wait to see if recent rises slow inflation down,” said Mr Gillham.

CreditorWatch chief economist Anneke Thompson said that the RBA's rise is focused on the supply side inflation rather than demand side. 

"The economic update provided by the Treasurer last week pointed to inflation peaking toward the end of the year, at near 8 per cent, before starting to fall in 2023," said Ms Thompson. "While this is clearly of concern, the RBA will no doubt be focused on trying to break out supply side inflation, versus the demand side, and tailoring their monetary policy response as close as possible to this."

"Much of the inflation recorded over the June 2022 quarter was caused by supply-side issues - the war in Ukraine (fuel) and weather events (fruit and vegetables)."

RBA announces August rate rise
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Miranda Brownlee

Miranda Brownlee

AUTHOR

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

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