In its final cash rate announcement for 2022, the Reserve Bank of Australia (RBA) spiked the cash rate to 3.1% today.

The 25 basis point (bps) rise from 2.85% was an expected Christmas gift that property investors celebrated - but mortgage holders could have done without, especially coming after seven consecutive increases this year.

The national cash rate has also now lifted from an 18-month stall of 0.1% between November 2020-April 2022 to the highest Australia has experienced since November 2012, when we saw a 3.25% figure for two months before a decade of declining numbers.

"Inflation is still too high"

All of the Big 4 Banks and the majority of financial experts expected another rate rise with the RBA well known for wanting inflation to fall to its target of 2%-3%.

RBA governor Phillip Lowe certainly wasn't convinced that even a better-than-expected inflation drop to 6.9% in October should equal a better-than-expected cash rate announcement. 

Indeed, he expects inflation to peak at around 8% over the year to the December quarter.

In the meantime, and just as he did after his November announcement, Dr Lowe pronounced the recent 6.9% inflation figure to still be too high, although he admitted global factors were a big reason for this.

"But strong domestic demand relative to the ability of the economy to meet that demand is also playing a role," he added.

Dr Lowe also argued again for a "more sustainable balance between demand and supply" before inflation could return to its target figure - and he believes this target won't come to pass until 2024.

But inflation was expected to decline to around 4.75% next year, he said, due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand.

Dr Lowe continues to be pleased about the Australian economy's solid growth yet at the same time, he's keen to avoid a "prices-wages spiral".

This spiral could be a combined result of very low unemployment figures which dropped to 3.4% in October - the lowest rate since 1974 - a very tight labour market and a pick-up in wages growth.

"Price stability is a prerequisite for a strong economy and a sustained period of full employment," Dr Lowe said.

"Given this, the Board’s priority is to return inflation to the 2%–3% range over time."

"Largest rate-tightening cycle since the early 2000s"

CoreLogic's Eliza Owen was generally understanding of this year's eighth consecutive cash rate rise, saying it "signalled the RBA is committed to tackling the 'scourge' of inflation."

However, she pointed out that the new 3.1% cash rate was now beyond even the 3% home loan serviceability assessment buffer introduced by APRA in October last year.

As well, the many mortgage holders who bought during COVID and whose extra low fixed-term rates are about to expire will now face an average variable rate of 5.08%, said Ms Owen.

"The higher rate environment will test housing market conditions in 2023 when the majority of outstanding fixed-term mortgages are expected to expire," she said.

However, recent figures from both the overall economy and the property market, in particular, were encouraging, Ms Owen said.

These figures include:

• retail sales declined by -0.2% in October, in the first monthly fall in 2022
• commodity prices and supply chain pressures are easing
• new dwelling approvals continued to trend lower in October
• rental markets have started to ease slightly, 
• although rental markets remain very tight, the rate of growth in rental values has eased slightly in the last quarter to 2.5% after a capital city rental peak of 3.15% in July

Yet while figures such as these showed a slight shift in the Australian economy, Ms Owen believes there are several other indicators highlighting that it's still too early for a pause in the rate-tightening cycle.

She agreed with Dr Lowe that these indicators were a 2.9% increase in wages and salaries - a growth rate not seen since 2007 - according to the September quarter ABS business indicators data, released this week.

As well, labour force data in October showed continued growth in the number of people employed.

The property market is also only now starting to feel the impact of the seven 2022 rate rises, said Ms Owen.

Some of the most significant data for this impact are the lower volumes of new mortgage finance secured (down 17.9% between May and October); annual sales volumes (down 13.3% on this time last year); and consumer sentiment (down 6.9% in November).

RBA cash rate changes in 2022

Here's a quick look at the RBA rate changes this year:

The 0.1% cash rate which began in November 2020 continued through February, March and April.

May saw our first rate hike in 18 months with a 25 bps rise to 0.35%.

June - 50bps rise to 0.85%.

July - 50bps rise to 1.35%.

August - 50bps rise to 1.85%.

September - 50bps rise to 2.35%.

October - 25bps rise to 2.6%.

November - 25bps rise to 2.85%.

Expect interest rate increases in 2023

Dr Lowe made no bones about the fact that we should expect further interest rate rises in 2023 - or at least "over the period ahead".

But he continued to argue that this year's eight rate rises had been necessary to quash an even more damaging high inflation and ensure it was only temporary.

At the same time, he acknowledged that mortgage holders had yet to feel the full effect of this tough monetary policy and said he realised household spending would slow in the short term at least.

He noted however that "the timing and extent" of this slowdown - as well as that of the global economy's outlook - was uncertain, which meant there were a "range of potential scenarios" ahead of us.

"The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one," Dr Lowe said.

"The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. 

"The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."

There will be no RBA monthly cash rate announcement in January 2023. The central bank's next such announcement will be on Tuesday, February 7, 2023 at 2.30pm AEDT.