PHOTO: Reserve Bank of Australia. FILE

RBA decision to raise Australia’s cash rate by another 25 basis points brings the official rate to 4.1%, its highest level in 11 years

The Reserve Bank has lifted interest rates for a 12th time in just over a year, judging the risk of inflation staying too high for too long outweighed the added financial stress that will hurt households and businesses.



The decision to hike by another 25 basis points brings the cash rate to 4.1%, its highest level in 11 years. Economists and markets had slightly favoured no change for this month.

“Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range,” the RBA governor, Philip Lowe, said in an accompanying statement. “This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.”

Lowe also left open the prospect of further rate rises if needed.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.

Lowe repeated his mantra that the bank’s board remained “resolute in its determination to return inflation to target and will do what is necessary to achieve that”. As of April, underlying inflation was running at an annual rate of 6.5%, well above the RBA’s target range of between 2% and 3%.

Indeed, Lowe said recent data indicated “the upside risks to the inflation outlook have increased”, which prompted today’s increase.

“While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas,” he said. “Unit labour costs are also rising briskly, with productivity growth remaining subdued.”

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Each 25bp increase in variable rates lifts monthly mortgage payments by about $15 for each $100,000 borrowed. Since the central bank began raising rates last May, the 400bp of increases have elevated such payments by $1134 for those on a typical $500,000, 25-year owner-occupier loan, RateCity estimates.

The Australian dollar leapt on the news, jumping about half a US cent to trade recently above 66.7 US cents. Stocks extended their falls for the day, with the ASX200 benchmark index down more than 1%.

The treasurer, Jim Chalmers, sought to distance the federal government from the interest rate rise, adding “the war against inflation is far from won”.

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“This rate rise today is not because of the budget and it’s not because people on the minimum wage are being paid too much and we should be really clear about that,” Chalmers told a media gathering in Canberra.