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RBA Increase Rates by 0.50%


Australia’s central bank has triggered a third interest rate hike in as many months, imposing a 50 basis point increase which lifts the official cash rate from 0.85% to 1.35%.


The widely anticipated increase was unveiled on Tuesday afternoon and it compounds price pressures building on Australian households, including petrol prices north of $2 a litre despite a temporary reduction in fuel excise, and the looming negative impact of renewed flooding on fresh food prices.


The governor of the Reserve Bank of Australia, Philip Lowe, signalled more rate rises were likely in the coming months.


“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,” he said in a statement.


“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”


The treasurer, Jim Chalmers, was out managing expectations ahead of Tuesday’s announcement, saying households would face difficult conditions for the rest of the year and it was important to be upfront with people about that reality.


Market analysts suggest the cash rate could end up somewhere between 2% and 3% as the RBA attempts to dampen surging inflationary pressure in the economy, and Chalmers warned on Tuesday morning the latest increase “won’t be the last one this year”.


Chalmers acknowledged in a rising interest rate climate “a bigger proportion of household budgets, which are already stretched by the price of petrol and groceries and electricity and other essentials, [would] be eaten up by mortgage repayments”.


“People will find today’s news really difficult, I think,” the treasurer said. “It will be a tough day for a lot of homeowners.”


He said the RBA was increasing the cash rate because “we’ve got high and rising inflation, and that’s why they have deemed these difficult decisions to be necessary”.


The rising interest rate climate has already had a negative impact on house prices. CoreLogic’s home value index has fallen for two consecutive months, with the national fall in home values driven by sharp monthly declines in Sydney (down 1.6%) and Melbourne (down 1.1%).

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