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RBA raises cash rate to 4.6 per cent, a 15-year high, as tougher rate cycle looms

Borrowers face a harder hit than the 2023 cycle as fixed-rate mortgages expire and the government's budget room narrows.

By LineZotpaper
Published
Updated
Read Time2 min
Sources6 outlets
The Reserve Bank of Australia has raised the cash rate to a 15-year high of 4.6 per cent, a move expected to hit households harder than the rate cycle endured in 2023. The federal government, facing a depleted budget, will find it harder to repeat its earlier election spending playbook.

Tuesday's hike took the cash rate to 4.6 per cent, the highest in 15 years. The Reserve Bank is now considered newly hawkish and has signalled more rate hikes could come. The current rate is the second highest in the advanced world outside Iceland, and significantly higher than nations such as New Zealand and Canada, where policymakers accepted more job losses to curb inflation.

The impact on households is expected to be more severe than the 2023 cycle. During that earlier period, COVID stimulus was still supporting household budgets. That support has now gone. While savings buffers remain in reasonable shape, the share of mortgages on fixed rates has fallen from about 40 per cent then to around 5 per cent now, leaving many more borrowers exposed to variable rates.

The political ramifications are significant. Prime Minister Anthony Albanese, who previously used election spending to see off former Coalition leader Peter Dutton, now faces a new threat from One Nation's Pauline Hanson. With a depleted budget, his options for similar relief are limited.

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Analysis

Why This Matters

  • Borrowers coming off fixed-rate mortgages will face immediate increases in repayments, and with more loans on variable rates, the pain is more widespread than in 2023.
  • The government has limited fiscal room to respond with cost-of-living relief, reducing its ability to cushion the economic blow.
  • The political landscape has shifted: the government must defend against both the Coalition and One Nation with fewer financial tools at its disposal.

Background

The Reserve Bank has been raising interest rates to bring inflation back to its target range. In the previous tightening cycle, the economy was still supported by pandemic stimulus, and a large share of mortgages were on fixed rates, shielding borrowers from the full impact of higher rates. That buffer has largely disappeared. The budget position has also deteriorated, limiting the scope for the kind of targeted spending that previously helped the government politically.

Key Perspectives

Borrowers and mortgage holders: Australians with expiring fixed-rate loans are most exposed. Savings buffers provide some cushion, but they are not evenly distributed.

The Reserve Bank: Investors worry governor Michele Bullock will stop at nothing to tame stubborn inflation, even if it means further rate rises and economic pain.

The federal government: With a depleted budget, it is constrained in its ability to offer relief. Its previous strategy of election spending may not be repeatable, leaving it vulnerable to political attacks.

Opposition and One Nation: Both are positioned to capitalise on cost-of-living anger. One Nation's Pauline Hanson represents a new threat to the prime minister, according to the Brisbane Times.

What to Watch

  • Any further RBA rate decisions and whether the bank's hawkish signals translate into additional hikes.
  • The speed at which fixed-rate mortgages roll off and the resulting impact on household budgets.
  • The government's next budget or spending update, and whether it can find room for targeted relief.
  • Opinion polling on support for the Coalition, One Nation and the government as the next election approaches.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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