The latest move takes the Reserve Bank of Australia's cash rate target to 2.85 percent. Photo: AFP or licensors
Reserve Bank of Australia (RBA) has raised its cash rate target by 0.25 of a percentage point, opting against a return to steeper interest rate hikes.
The latest move takes the RBA's cash rate target to 2.85 percent, up from a record low of 0.1 percent at the start of May this year, and the highest it has been since May 2013.
NAB was the first major bank to announce its response to the RBA's decision, lifting rates on variable mortgages by 0.25 of a percentage point from November 11.
RateCity figures showed a borrower owing NZ$822,731 on a 25-year mortgage would soon pay an extra NZ$123 a month once the latest rate rise is passed on by the banks.
That borrower would now face an NZ$1,250 increase in their monthly repayments since rates started rising in May.
However, the post-meeting statement from RBA governor Philip Lowe warned borrowers that they should brace for more rate rises.
"The board expects to increase interest rates further over the period ahead," he warned.
"The size and timing of future interest rate increases will continue to be determined by the incoming data and the board's assessment of the outlook for inflation and the labour market."
Just ahead of the meeting, financial markets had priced in a slightly greater than 70 percent chance of a rate move that size, with less than a 30 percent chance of a bigger 0.5 of a percentage point hike.
Forecasts of a 0.5-percentage-point interest rate increase had grown stronger after official inflation figures from the Australian Bureau of Statistics showed prices had jumped 7.3 percent over the year to September.
That was above economist forecasts, and included stronger-than-expected increases in the Reserve Bank's preferred "core" measures of inflation, which came in at 6.1 and 5 percent, well above the RBA's 2-3 percent target.
On the back of those figures, the Reserve Bank now expects headline inflation to reach around 8 percent by the end of this year, before gradually falling back to a little above 3 percent in 2024.
Marcel Thieliant from Capital Economics said that backs his view that the Reserve Bank still has another four 0.25-percentage-point rises ahead over the next six months or so.
However, he also believed the economy and inflation will slow much more sharply next year than the RBA is forecasting.
"The upshot is that we still see a good chance that policy will be loosened before the end of next year," he argued.
"The analyst consensus is that the bank will only start to cut interest rates by mid-2024."
Earlier this week, economists told RNZ that with a very tight labour market and rising wages may result in an increase in the official cash rate (OCR) in New Zealand.
Kiwibank chief economist Jarrod Kerr said increasing wages would mean the Reserve Bank of New Zealand would have little choice but to hike the OCR another 75 basis points this week when it updated its financial stability report.
- ABC / RNZ