RBA: Interest rate decision, increase with warning of more to come

The central bank made the announcement on Tuesday afternoon, with the cash rate the highest they’ve been since April 2012. At the time they were set at 4.25 per cent, following a gruelling 11 month period when they plateaued at 4.75 per cent between November 2010 to October 2021.

Since April 2022, the cash rate has increased from 0.1 per cent to 3.85 per cent, rising by 375 basis points.

Dr Lowe said the hike was necessary in order to return inflation to the goal range of 2 to 3 per cent, which he said was the RBA’s “priority”.

While inflation slightly slowed in the March quarter, Australia’s Consumer Price Index remained at an “uncomfortably high” position of 7.0 per cent.

“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” he said in his monthly statement.

“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.”

Previously it was widely expected for the RBA would hold the cash rate steady at 3.6 per cent after 10 consecutive rises from April 2022 to February 2023.

Lowe ignites fresh fear after rate hike

Dr Lowe also warned “further tightening” may be necessary, indicating future pain for households already struggling with rising cost-of-living pressures. He said the RBA was determined to bring down inflation and “will do what is necessary” to achieve that.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.

“The board will continue to pay close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Once again, he warned of the dangers of not controlling inflastion, which he said would be “very costly to reduce later” and could result in “even higher interest rates and a larger rise in unemployment”.

Despite the immediate pain, he said the medium forecast was positive.

“Medium-term inflation expectations remain well anchored, and it is important that this remains the case,” he said.

“Today’s further adjustment in interest rates will help in this regard.”

Originally published as RBA increases interest rate by 25 basis points, pushing cash rate to 3.85 per cent