The Reserve Bank has hiked the cash rate for the fourth time this year, with all nine members of the Monetary Policy Board agreeing to a 25 basis point increase to 4.60 per cent. This latest rise takes interest rates to their highest level since 2011.
The Board had held at 4.35 per cent in August, after three rises earlier in the year. This time, its statement said inflation remains elevated and some of the risks it flagged in August are now playing out. The conflict in the Middle East has widened, global energy prices are well above what the RBA assumed, and AI-related demand is pushing up global prices for technology goods. The Board also pointed to capacity pressures at home, and said it will do what it considers necessary to bring inflation back to target, including lifting rates further if needed.
Hiring is cooling
James Keene, Managing Director APAC at Employment Hero, says the decision lands at a tricky moment for small and medium businesses, because hiring was already losing steam. He said:
"Today's decision adds further pressure to Australian SMBs at a time when hiring momentum is already slowing. Businesses have shown they can weather a tough cycle. But as the RBA seeks to bring inflation under control, further pressure on borrowing costs could make businesses far more cautious about hiring and investment. In turn, job seekers are left facing a less certain market."
What the jobs data shows
Keene pointed to Employment Hero's latest Jobs Report to back that up:
"Our latest Jobs Report shows headcount growth rose just 0.1% in August and 0.6% over the past three months, the weakest quarterly growth we've recorded in the last year. At the same time, businesses are still contending with annual wage growth of 4.5%, including record part-time wage growth of 6.0%."
The productivity debate
Governor Michele Bullock has also been talking about productivity. In a recent fireside chat with CEDA, she said the RBA's own work suggests Australian businesses have become less dynamic over the past decade or so. Some, she said, aren't investing enough or looking for new ways to combine labour and capital. She said she didn't know what the solutions were, but noted that competition is something many people raise.
Keene took issue with how that debate is being framed: "Governor Michele Bullock's focus on productivity this week is an important signal for businesses, but the productivity challenge facing Australia isn't a "lack of ambition" from business owners. It's that many SMBs are still burdened by manual processes and administrative complexity that distract from growth. If we want more businesses growing to their full potential, accelerating technology adoption across the SMB sector needs to be part of the solution."
Owners will want to know whether this is the last rise. ANZ has pencilled in another one in November, which would take the cash rate to 4.85 per cent. At her press conference, Bullock said that if inflation comes down, no more hikes may be needed.