After 138 months, the Reserve Bank of Australia (RBA) has decided to increase the official cash rate by 25 basis points to 0.35 per cent in response to increasing inflation pressures.
The latest inflation data showed Australia had recorded the highest quarterly and annual increase in more than two decades, since the introduction of GST in 2000.
The last time the RBA increased interest rates was in November 2010. The official cash rate has been at a record low of 0.1 per cent since November 2020.
Read today’s official statement on the RBA’s website. RBA’s Philip Lowe said “now was the right time to begin withdrawing some of the extraordinary monetary support that was put in pace to help the Australian economy during the pandemic.”
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” he explained.
“There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.
“The resilience of the Australian economy is particularly evident in the labour market, with the unemployment rate declining over recent months to 4 per cent and labour force participation increasing to a record high.
“Both job vacancies and job ads are also at high levels. The central forecast is for the unemployment rate to decline to around 3½ per cent by early 2023 and remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years.”
Mortgage holders have been warned to prepare for a double rate rise. The cash rate is largely expected to jump by one (1) per cent by the end of this year and reach 1.25 per cent next year.
Lenders are likely to lift mortgage rates in line with the cash rate increase, which may result in big changes to variable home loan repayments.
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