RBA interest rates: Reserve Bank lifts official cash rate by 50 basis points to 1.85%
The Reserve Bank of Australia has lifted its key interest rate for a fourth straight month, hoisting the cash rate by 50 basis points in its fastest tightening action in almost 30 years to quell inflation.
The RBA decided to raise the cash rate to 1.85% after its monthly board meeting on Tuesday. The four rate rises bring the increase to 1.75 percentage points, or the most since 1994. Most economists had tipped the 50 basis-point jump.
But the bank’s governor, Philip Lowe, said Australia’s economy would grow slower this year and in coming years than the RBA had forecast in its May statement on monetary policy. The forecast cuts and changes in his comments about future rate rises prompted investors to send the Australian dollar lower against its US counterpart and for shares to pare losses for the day.
Australia’s reserve bank has lagged behind most of its overseas counterparts in raising the cost of borrowing to take some of the impetus out of quickening price rises. The consumer prices rose in the June quarter at the fastest annual pace since the introduction of the goods and services tax at the start of the century.
For an owner-occupier with a $500,000 variable rate mortgage and 25 years to go, a 50 basis-point increase in the lending rate would add about $140 in monthly repayments, according to RateCity. The increases since May would lift monthly repayments by $472, assuming the commercial banks pass on the whole increase.
The treasurer, Jim Chalmers, last week said consumer price inflation was forecast to peak at 7.75% by December. Inflation will not drop back into the RBA’s target range of 2% to 3% until the year ending in June 2024, the treasurer predicted.
Markets moved on Lowe’s comments that included a cut in
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