The Reserve Bank of Australia (RBA) has today decided to increase the cash rate by 25 basis points to 3.10 per cent.
RBA governor Philip Lowe released a statement in which he said, “Inflation in Australia is too high, at 6.9 per cent over the year to October. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply.
“A further increase in inflation is expected over the months ahead, with inflation forecast to peak at around 8 per cent over the year to the December quarter.”
Since early 2022, interest rates have steadily increased.
Dr Lowe said, “This has been necessary to ensure that the current period of high inflation is only temporary. High inflation damages our economy and makes life more difficult for people. The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.
The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments. Household spending is expected to slow over the period ahead although the timing and extent of this slowdown is uncertain.”
This decision comes after Reserve Bank governor Philip Lowe apologised to Australians for making suggestions that resulted in many believing interest rates would stay low until 2024 and, thus, taking out big mortgages.
Following this, Dr Lowe stated that the approach to how the Reserve Bank communicates with the public would change.
This cash rate hike will add approximately $80 more to the monthly payment on a $500,000 mortgage. This means that the overall increase in monthly payments since April will be approximately $910 a month or $11,000 a year.
“The Board expects to increase interest rates further over the period ahead,” says Dr Lowe, “but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour. 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."
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