RBA interest rates: Reserve Bank hikes official cash rate to 4.35% in blow to mortgage holders | Reserve Bank of Australia
Although the Central Bank warned that the Iran war would deal a major blow to the economy, it increased interest rates for the third time in a row to control the increasing inflationary pressures due to high fuel prices.
The widely anticipated decision to raise the cash rate from 4.1% to 4.35% comes as the central bank unveiled bleak new forecasts showing weak growth as well as rising cost of living pressures.
The consequences of the Iran war will reduce economic growth in 2026 by half a percentage point compared to pre-conflict forecasts in February, with annual growth falling to 1.3% this year.
The stagflation effect of the oil supply shock results from inflation reaching a higher peak; consumer price growth reached 4.8% by the June quarter, compared to a pre-war forecast of 4.2%.
A week after what treasurer Jim Chalmers called the most ambitious and responsible budget ever, the RBA’s decision will deal a blow to more than three million households with a mortgage.
The RBA’s outlook suggested Australians will suffer another year of falling living standards as prices rise faster than pay packets.
Under the RBA’s relatively optimistic “baseline” scenario, which assumes a relatively rapid end to the conflict in the Middle East, the hit to growth will not translate into significantly higher unemployment in the near term; The unemployment rate is expected to be at a relatively low level of 4.3% by the end of this year.
The RBA also explored two “downside” scenarios involving a longer-lasting conflict that would keep oil prices higher for longer.
In the more extreme version, unemployment was expected to rise above 5% when the economy slowed more sharply.
Even in this more pessimistic scenario, the country is avoiding recession, according to forecasts; but the RBA said it had not attempted to model what would happen if Australia were physically short of fuel.
