Reserve Bank of Australia Expected to Raise Rates to 15-Year High

The Reserve Bank of Australia is widely expected to raise the official cash rate by 25 basis points to 4.6% on Tuesday, September 29, marking a 15-year high. This projected move follows a two-day board meeting and comes as core inflation remains at 3.6%, exceeding the target range of 2% to 3%. Governor Michele Bullock has attributed persistent inflation to supply-side shocks, including the war in the Middle East and a global investment boom in AI-driven data centers.

While the jobless rate unexpectedly rose to a five-year high of 4.6% in August, the central bank is prioritizing inflation control. Treasurer Jim Chalmers noted that the federal budget performed $6 billion better than expected due to AI-driven tax revenues, though he attributed cost-of-living pressures to geopolitical conflict. Conversely, Nationals Leader Matt Canavan blamed inflation on government spending and proposed cuts to aged care and childcare.

Economists warn the hike could be devastating for the property market. Research from the University of Sydney indicates that a 0.25 percentage point increase leads to an immediate 5% decline in home purchases. With residential mortgages reaching $2.51 trillion, analysts suggest further hikes could trigger home price drops of up to 20% and push the economy toward recession. Some lenders, including ANZ, predict additional increases could push the rate to 4.85% or higher by the end of the year.