Why the RBA is expected to raise interest rates - ABC News & Headlines – Australian Broadcasting Corporation

The Reserve Bank is widely tipped to raise the cash rate this afternoon to its highest level in almost 15 years.

Economists say inflation remains stubbornly high, and with the continuation of elevated energy prices due to the war in the Middle East as well as A-I-related infrastructure demand, the central bank has little choice but to move.

Markets and economists expect the Reserve Bank to raise the cash rate this afternoon from 4-point-3-5... to 4-point-6 per cent... its highest level since November 20-11.

storm auldIt's really almost a bit of a perfect storm for inflation.

Chief Economist at the National Australia Bank Sally Auld believes higher than expected Consumer Price Index data for July... combined with global inflationary pressures... have left the central bank with little choice but to move.

things auldThings like a continuation of elevated energy prices because of the Middle East conflict, and then also the build up of infrastructure associated with artificial intelligence putting upward pressure on demand for, skilled labor and possibly materials also adding to inflation, those things feel like they are being realized possibly more quickly than the Reserve Bank thought would be the case as well.

If today's predicted rate rise eventuates... it will be sooner than was tipped by analysts just a few months ago... and ahead of the release of quarterly data used to inform monetary policy decisions.

curve auldMy sense is that they just feel like there's a cost to waiting and that cost might be that you get even further behind the curve in terms of dealing with the inflation challenge.

Markets and economists will be closely watching August's inflation data published tomorrow... as well as whether today's R-B-A board decision is unanimous or split... before making predictions for any move at the next meeting in November.

As for the impact of this rate raising cycle on the housing market... senior economist with realestate.com.au Angus Moore explains... its hurting borrowing capacity more than it's lowering the growth of house prices.

declines mooreWhile we are seeing home prices declining. The declines that we've seen to date, about 2.5%, a little bit more than that nationally, is nowhere near enough to offset the increase in borrowing costs that we've seen already. And with more rate hikes to come, that's obviously going to get worse. Another way to put that is that on our measures, housing affordability is substantially worse than has been true in recent years. In fact, it's as bad as we've ever seen on our records and worse than was true 12 months ago, even with home prices down.it's first home buyers who feel that the most.

And capacity moore They're particularly credit constrained and affordability is a really big constraint for them. And so reduced borrowing capacity can really put a handbrake on first home buyer activity.

The R-B-A will announce its interest rate decision this afternoon.