Even though the Reserve Bank appears hesitant to raise rates further, another increase in the official cash rate has caused more financial suffering for borrowers.

The official cash rate increased to 4.35 percent in November, as expected.

A 25 basis point increase was anticipated by most analysts, and all four of the major banks were leaning towards a day hike in anticipation of the Melbourne Cup.

Additionally, it raised the interest rate paid on balances held through Exchange Settlement by 25 basis points, to 4.25 percent.

Although Australia's inflation has peaked, it is still excessively high and has been more persistent than anticipated a few months ago. According to the most recent CPI inflation reading, the inflation of goods prices has decreased even more, but the cost of many services is still rising quickly. Although the primary prediction is for CPI inflation to keep declining, the pace of change appears to be slower than anticipated.

As of right now, CPI inflation is predicted to reach the upper end of the target range of 2 to 3 percent by the end of 2025 and to be roughly 3½ percent by the end of 2024. In order to increase confidence that inflation will return to target within a reasonable timeframe, the Board determined that an increase in interest rates was necessary today.

After raising interest rates by 4 percentage points since May of last year, the Board had maintained stable rates since June. It concluded that higher interest rates were contributing to the establishment of a more stable supply and demand equilibrium in the economy. It had also mentioned that the economy would continue to be affected by the more recent rate increases. As a result, it determined that it was appropriate to keep interest rates unchanged in order to give time to evaluate the effects of the rate increase thus far. The Board had specifically stated that it would be closely monitoring developments in the global economy, household spending trends, and the labour market and inflation outlook.

The Board has been provided with updated information on inflation, the labour market, economic activity, and the revised set of forecasts since its August meeting. The likelihood that inflation will stay higher for a longer period of time has increased, according to the weight of this data. The economy has grown more than anticipated in the first half of the year, despite a period of below-trend growth. When the August forecasts were made, underlying inflation was higher than anticipated for a wide range of services. Although they have improved, labour market conditions are still tight. Nationwide, the cost of housing is still rising.

Real incomes are being negatively impacted by high inflation, slow growth in household consumption, and low investment in homes. The economy is expected to grow below trend, which means that employment will grow more slowly than the labour force and the unemployment rate will gradually rise to about 4.5%. Compared to earlier projections, this increase is more moderate. Even though wage growth has accelerated over the past year, it is still within the inflation target—as long as productivity growth accelerates.

The Board's top priority will always be getting inflation back on track within a reasonable time frame. Excessive inflation ruins the economy's ability to function and makes life difficult for everyone. It weakens household budgets, reduces the value of savings, hinders business planning and investment, and exacerbates income inequality.

RBA governor Michele Bullock said that although inflation had peaked, it was still too high and was continuing longer than anticipated a few months ago in a statement following the meeting.

Furthermore, it would be far more expensive to lower inflation later on, resulting in even higher interest rates and a greater increase in unemployment, if high inflation were to become ingrained in people's expectations. It is crucial that medium-term inflation expectations continue to align with the inflation target as they have done thus far.

The outlook is still shrouded in substantial uncertainty. Inflation in service prices has been surprisingly consistent abroad, and it might happen in Australia as well. Uncertainties exist regarding the timing of the impact of monetary policy as well as how wages and pricing policies of businesses will react to the economy's slower growth during a period when the labour market is still tight.

The future of household consumption is also unclear; while some households are benefiting from rising housing prices, sizeable savings buffers, and higher interest income, many are still struggling to make ends meet.

Furthermore, there is still a great deal of uncertainty worldwide regarding the prospects for the Chinese economy and the effects of the conflicts overseas.

The data and the changing risk assessment will determine if more monetary policy tightening is necessary to guarantee that inflation returns to target within a reasonable timeframe. The Board will continue to closely monitor changes in the labour market, inflation, and global economic conditions as it makes decisions. It will also keep an eye on trends in domestic demand. The Board is still committed to bringing inflation back to target and will take all necessary steps to make that happen.

Today’s interest rate rise sacrifices jobs and incomes to curb inflation and the effects will be felt most acutely by people on the lowest incomes, ACOSS says.

ACOSS CEO Cassandra Goldie says: “The RBA’s decision to lift the cash rate to 4.35 per cent will hurt people with low incomes the most. The worthy goal of reducing inflation must not come at the expense of jobs and incomes, which have just taken another hit from the 13th interest rate rise since May 2022.”

“Every rate rise leads to job losses down the line. The RBA expects unemployment to rise to 4.25%, at least an extra 100,000 people out of paid work since it began hiking interest rates. Given the storm clouds over the international economy, unemployment could rise a lot further.” she says.

Furthermore, there is still a great deal of uncertainty worldwide regarding the prospects for the Chinese economy and the effects of the conflicts overseas.

The data and the changing risk assessment will determine if more monetary policy tightening is necessary to guarantee that inflation returns to target within a reasonable timeframe. The Board will continue to closely monitor changes in the labour market, inflation, and global economic conditions as it makes decisions. It will also keep an eye on trends in domestic demand. The Board is still committed to bringing inflation back to target and will take all necessary steps to make that happen.

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