RBA increases interest rate by .25 per cent

03-05-2022

The Board of the Reserve Bank (RBA) has officially lifted the interest rate by .25 per cent, making the cash rate now .35 per cent.

It comes as Australia is experiencing record annual inflation at a two decade high of 5.1 per cent. Most economists predicted that the rise would lift the record low cash rate of 0.1 per cent. to 0.25 per cent, an increase of 0.15 of a percentage point.

At its meeting today, the Board also decided to increase the interest rate on Exchange Settlement balances from zero per cent to 25 basis points.

RBA Governor Phil Lowe confirmed there will be more rate rises ahead, after lifting the official interest rate for the first time since November 2010.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up,” he said.

“Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Lowe also noted that the strong labour market - with unemployment expected to fall to 3.5 percent by early 2023 - strong economic growth and higher than expected inflation as reasons for the move. The RBA expects inflation to rise further in the near future.

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” Lowe said.

“This will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.”

The waiting game is over

St. George Business Bank chief economist Bes Deda told Industry Update, "Strong inflationary pressures and a 50-year low in the unemployment rate means the RBA tapped on the brakes by 25 basis points. First rate hike in 11.5 years and the first rate hike during an election campaign since 2007. We expect the RBA will want to quickly reverse the emergency rate cuts they delivered during the pandemic, so we expect a follow up in June and further rate hikes this year to take the cash rate to over 1.50%. 

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