The Reserve Bank has moved the cash rate up another 25 basis points to 4.6 per cent, the highest setting since 2011. As SmartCompany reported, the board's decision was unanimous, driven by hotter-than-expected inflation, rising oil prices and hawkish signalling from the RBA's top brass.
Markets had largely priced the move in, and they aren't done. The article notes traders are fully priced for a further rise by February and placing an each-way bet on a third hike in 2027.
What it changes for borrowers
The cash rate is the floor under most business lending. When it moves, variable business facilities, overdrafts, and anything priced off a bank's reference rate tend to follow. SmartCompany cites Canstar's figure that the average owner-occupier variable home loan climbs to 6.49 per cent, a mortgage number, but a useful read on direction. Commercial facilities sit above that, and they move the same way.
For a business carrying variable debt, the near-term effect is mechanical: your interest line rises at the next reset. If markets are right about February and beyond, the cost of servicing existing facilities keeps edging up rather than settling.
The backdrop complicates things. Unemployment rose to 4.6 per cent in August, household spending growth was flat for the month, and HSBC's Paul Bloxham flags a rising recession risk. The RBA is tightening into a softening economy, which is precisely why economists disagree about whether February's hike actually lands. EY's Cherelle Murphy reads the 6.8 per cent annual spending figure as evidence more tightening is still warranted.
Two honest takeaways. First, the cost of variable debt has gone up today, full stop. Second, the forward path is a market bet, not a schedule, the each-way pricing tells you the professionals aren't certain either. If your facility resets off the cash rate, the new arithmetic is already in motion. Where it ends is still an open question.