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RBA hands down much-awaited May cash rate

By Juliet Helmke
03 May 2022 | 13 minute read
RBA property reb

The Reserve Bank of Australia has released its cash rate for May amid wide speculation this would be the month to break the record low that has been held since November 2020.

During its monthly board meeting on Tuesday, 3 May, the bank moved to raise the cash rate 25 basis points, from 0.1 to 0.35 per cent.

This decision affirms what three of Australia’s four big banks predicted last week, when economists from Westpac, NAB and ANZ all revised their forecasts to predict that the central bank would move the cash rate following official inflation figures hitting 5.1 per cent.


Only the Commonwealth Bank held off from predicting a May rise, forecasting that the RBA would wait for further evidence on labour costs before initiating the tightening cycle in June. 

CBA’s economists had acknowledged, however, that it was possible the bank could make a move sooner.

Ahead of today’s call, Westpac, NAB and ANZ all predicted a 0.15 percentage point hike in May. 

PropTrack economist Paul Ryan said that by moving today, rather than waiting for further data in June, “the RBA is signalling that it will intervene to curb stronger than expected inflationary pressures, despite the ongoing federal election campaign”.

He noted that failing to adjust policy may have been viewed as a greater political intervention.

Anneke Thompson, chief economist at CreditorWatch, commented that while the bank had decided to move prior to the release of wage growth figures, they would still play a big part in determining how the board proceeds in June.

“Even if upcoming wage data shows an increase on the current pace of growth of 2.3 per cent, it is a near impossibility that it will be anywhere near the latest inflation figure of 5.1 per cent. This means that the data is almost certain to show that real incomes are going backwards,” Ms Thompson noted. 

“Nevertheless, the RBA will take comfort if they see at least some momentum gaining in wages growth. If we see wage price growth with a 3 in front of it, this might push the RBA to move the cash rate more aggressively, to try and get the inflation spiral under control more quickly,” she said.

In terms of how property prices will react with mortgage rates now set to rise, PRD’s chief economist Dr Diaswati Mardiasmo recently weighed in with some historical data indicating it will likely take several cash rate tightening cycles before real estate prices reflect the change.

In response to rising inflation due to the fallout of the global financial crisis, the RBA initiated a number of cash rate rises beginning in October 2009.

“The cash rate went from 3.25 per cent to 4.75 per cent in the space of 12 months, amounting to an increase of 175 basis points in the space of just a little over 12 months,” Dr Mardiasmo noted.

But the first cash rate cut in October 2009 did not immediately set prices into decline.

“In fact, property prices went up due to the potential of another cash rate increase in the following months. Buyers wanted to be able to purchase their property at the new October 2009 cash rate before there were more,” Dr Mardiasmo explained.

“It took several cash rate hikes in succession over a period of roughly 12 months before we saw a cooling in price. This suggests there is a time-lag between a cash rate hike event and the translation into property prices.”


Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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