LUCI’S CALL: November rate hike could be the last

The Reserve Bank of Australia lifted the cash rate by 25 basis points to 4.35 per cent at its November Board meeting in response to persistent inflationary pressures. 

Inflation is still too high – the RBA is trying to get it down below 3 per cent by the middle of 2025, but it’s finding it harder to get there than it expected. And when the Board sees inflation not cooling as quickly as they’d hoped, they are responding to that. 

The economy has also been a little more resilient than they originally thought. Unemployment remains very low and the RBA has revised down its forecast for unemployment in 2024 and 2025. 

There’s no doubt that a lot of people are struggling with the higher cost of living, and their wages are not keeping up, but the economy is being supported by strength in other areas including rising housing prices and strong population growth. 

Over the next few months, the RBA is going to be watching the economic data very carefully, particularly inflation, unemployment and the global economy, as well as spending here in Australia. 

Any surprises on these fronts might induce them to tighten policy again. But if things turn out as they expect, they may be content to hold the cash rate here. 

For Luci’s full report, visit WestpacIQ.