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KEY POINTS:
- The Reserve Bank has raised its cash rate by a quarter of a percentage point to 3.35 per cent.
- The RBA is trying to dampen spending in order to put a lid on inflation.
- This rise is far outpacing wage growth, which increased by just 3.1 per cent over the year to September 2022.
The Reserve Bank of Australia (RBA) has raised its cash rate by a quarter of a percentage point to 3.35 per cent, its highest point in over a decade.
It’s the ninth rise in the cash rate since last May and takes it to its highest level since September 2012.
The RBA is trying to dampen spending in order to put a lid on inflation, which has risen to 7.8 per cent in the year to December, the highest rise since 1990.
RBA Governor Philip Lowe warned there would be more pain ahead this year for mortgage holders.
“Global inflation remains very high … it will be some time, though, before inflation is back to target rates.”
“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”
Treasurer Jim Chalmers said while the government couldn’t “interfere” with the RBA’s decision, it was focused on delivering cost-of-living relief to Australians.
“It’s our job to focus on the broader pressures that are coming at us from around the world and being felt around the kitchen tables of this country,” he said in Canberra on Tuesday afternoon.
“Think cheaper early childhood education, cheaper medicines and also taking some of the sting out of electricity price rises that we expect to see in our economy. The second part of our plan is obviously to deal with the issues in our supply chains and in our workforce.”
The current rise in inflation is far outpacing wage growth, which increased by just 3.1 per cent over the year to September 2022, with public sector wages growing just 2.3 per cent, while household purchasing power continues to fall.
Past rate hikes are already hurting household budgets, with the banks expected to pass this latest rise onto customers quickly.
The RBA has said it wants to return inflation to the 2–3 per cent range over time.
This is a developing story and will be updated.
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