At its meeting today, the board of the Reserve Bank of Australia raised the cash rate by 0.25 percentage points from 4.1 per cent to 4.35 per cent.
It marks the 13th rate rise over a period of 19 months and is the first rate rise from the Reserve Bank since its new governor, Michelle Bullock, stepped into the head role. Bullock is the first woman to ever hold the role of Reserve Bank governor.
The current cash rate is the highest it’s been in Australia since November 2011 and comes as the Reserve Bank continues to show concern about inflation. The 0.25 percentage point increase today will add about $100 to monthly repayments for a standard loan of about $600,000 and will be acutely felt by households across the country.
“Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago,” Bullock wrote in a statement on the decision on Tuesday.
“The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected.”
Bullock said inflation can now be expected to be around 3.5 per cent by the end of 2024, and between 2 and 3 per cent by the end of 2025.
“The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,” she said.
Bullock also outlined that the economy was experiencing a period of “below-trend growth”, but noted it had been stronger than expected over the first half of the year.
“Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services,” she said. “Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country.”
“At the same time, high inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.
“Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4¼ per cent.”
Bullock said the Reserve Bank’s focus was to return inflation to its target level, because high inflation is making life difficult for most people and it damages the functioning of the economy.
“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” Bullock said.
“And if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”