WEEKLY E-MAIL

12 December 2022

DECEMBER INTEREST RATE RISE

By Ngoc Christodoulou

On 6 December 2022, in their last meeting for the calendar year, the Reserve Bank Australia (RBA) made its eighth consecutive rate rise, raising the cash rate by 25 basis points to 3.10%.

Governor Lowe stated: “The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course”, signalling a strong likelihood of future rate rises in 2023. However, there is also a possibility that the RBA may ease off its tightening policy next year, with a potential slight pause on rate hikes.

Treasurer Jim Chalmers cautioned that “the magnitude of that impact and the timing of that impact is still… uncertain”, with many Australians yet to feel the full force of rate increases due to fixed mortgage interest rates. As fixed-rate periods end, many borrowers will experience a sharp increase in borrowing repayments.

The RBA’s monetary interventions have yielded results, with inflation slowing down to 6.9% at the end of October, down from 7.3% in September.

Australian CPI Indicator

Consumer spending is slowing down, with the most significant contributors to CPI for October new dwellings, fuel and fruit and vegetables. Interestingly the Australian Bureau of Statistics shows households continue to increase spending on domestic and international travel.

Whilst consumer spending is slowing down, inflation is still too high and not at a satisfactory level. Additionally, there are signs of creeping wage growth in an already tight labour market. The ABS showed a rise of 1% for the September 2022 quarter in the Wages Price Index to be 3.1% over the year.

Many economists are predicting one additional rate hike of 0.25% in the New Year, with an expectation that the cash rate will peak at 3.35%. We may be nearing the peak of the interest rate cycle.

Ngoc Christodoulou
Associate Financial Planner
Authorised Representative No. 1271825

If you have any questions or comments, please email me at ngoc@gfmwealth.com.au

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