RBA Increases the official Interest Rate by .25% to 2.85% | Inflation at 7.3%
The Reserve Bank of Australia has increased the official interest rate by 0.25 percentage points, the seventh straight rise. The Melbourne Cup Day increase was inline with expectations and means the overnight cash rate has leapt from 0.1 per cent to 2.85 per cent since early May, the fastest tightening cycle in almost 30 years.
RBA governor Philip Lowe revealed the bank now expected inflation to peak around 8 per cent, above the 7.75 per cent tipped in last week’s federal budget, and more interest rate rises would be needed to stymie price rises.
“As is the case in most countries, inflation in Australia is too high,” Dr Lowe said in his usual post-meeting statement, adding while global factors explained some pressures, strong domestic demand was also a factor.
“The board expects to increase interest rates further over the period ahead ... [and] remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
Treasurer Jim Chalmers said inflation was the No. 1 challenge for the economy and the No. 1 focus of the Albanese government.
The latest increase takes the cash rate to 2.85 per cent, its highest level since April 2013.
Headline inflation jumped 1.8 per cent in the September quarter, pushing annual growth to a shock 7.3 per cent. The result smashed expectations of 1.6 per cent quarterly growth and 7 per cent through the year.
In addition to expecting annual inflation to peak at around 8 per cent due to recent flooding and higher than anticipated electricity prices, the Reserve Bank thinks prices rises will stay above the bank’s 2 per cent to 3 per cent target band until at least 2025, longer than previously expected.
“Price stability is a prerequisite for a strong economy and a sustained period of full employment. Given this, the board’s priority is to return inflation to the 2 per cent to 3 per cent range over time,” Dr Lowe said.