RBA announces first November rate rise since 2010

The Reserve Bank of Australia (RBA) has announced another 25 basis point (bp) rate hike, taking the official interest rate to 2.85 per cent.

With inflation surprising to the upside and reaching 7.3 per cent at the end of September, the RBA was predicted by some to hike rates by another 50 bps on Tuesday in a move to normalise monetary conditions in Australia.

But the RBA instead decided to stick to the slower pace of rate hikes it kicked off last month in order to assess the impact and allow for monetary policy lags.

“This is the first November rate rise since 2010, with only seven rate rises on Melbourne Cup since 1990,” Russel Chesler, head of investments and capital markets at VanEck said in response to the RBA’s announcement.

“The good news is that Australian official rates are unlikely to rise as much as US rates; our inflation rate isn’t as high as that in the US and wages growth isn’t nearly as strong,” Mr Chesler said.

Scott Solomon, associate portfolio manager at T.Rowe Price, predicted the bank’s 25 bp move, noting on Tuesday morning that a move by 50 bps would have meant a sharp U-turn in thinking from the bank.

“Governor Lowe is intent on allowing effects from prior hikes to flow through to main street. He’s acutely aware that many mortgages are due to reset over the next couple of months and doesn’t want to unnecessarily burden the population,” Mr Solomon said.

“Furthermore, he’s quite proud of the levels of employment reached by the Australian economy and has zero desire to prematurely destroy that,” he added.

Similarly, while recognising the high pressure on the RBA, AMP chief economist, Dr Shane Oliver, told InvestorDaily last week that “common sense” would suggest the bank will deliver another 25 bp lift.

“Inflation is a lagging indicator and with the economy set to slow quite substantially, doing a 0.5 [hike] and aggressively raising rates after that just adds to the risks in the economy,” Dr Oliver said.

Last week, the Australian Bureau of Statistics revealed a 1.8 per cent rise in CPI during the September quarter, taking annual growth to 7.3 per cent — the highest since 1990.