The Reserve Bank has raised the cash rate for the fourth time in as many months with a view to curb inflation.
The Reserve Bank has lifted the official cash rate by 50 basis points to 1.85 per cent – its highest level in over six years.
For someone with a $500,000 mortgage at the start of May, with 25 years remaining, the total increase across the four hikes could be $472 a month.
RBA governor Philip Lowe said the rate rise was a “further step in the normalisation of monetary conditions in Australia”.
“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy,” he said in a statement after Tuesday’s board meeting.
“The board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”
Senior economists said that inflation is continuing to run hot but the labour market is tightening with the unemployment rate now sitting at 3.5 per cent.
Today’s rate rise brings the cash rate target up 175 basis points since May, the fastest increase since 1994.
How household spending holds up against a backdrop of higher inflation and falling house prices versus savings and wealth buffers, and hopefully stronger wages growth, will be crucial in determining the condition of the economy and how high and fast the cash rate rises.
This latest rate rise came as the value of new loan commitments for housing fell 4.4 per cent in June, but remained at a historically elevated level of $31 billion, according to the Australian Bureau of Statistics.
The RBA meets 11 times a year on the first Tuesday of each month (except January) and will do so again next month.
