RBA lifts rates 0.25%
With an election looming, the Reserve Bank of Australia has raised interest rates for the first time in more than a decade.
The RBA has increased the cash rate by 25 basis points to 35 basis points because “now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic”.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” it said, announcing the decision. “There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”
AMP Capital chief economist Shane Oliver said that with inflation blowing out to above 5 per cent and full employment having been reached, it’s now only a matter of time before official wages data picks up.
Mr Oliver, who correctly predicted that rates would rise this month, said that delaying the increase would have risked a “rise in inflation expectations, making it harder to get inflation back down”.
Bendigo and Adelaide Bank head of economic and market research David Robertson agreed that consumer price index (CPI) data, including a core inflation rate of 3.7 per cent has added even more urgency for the RBA to lift interest rates.
LJ Hooker head of research and business intelligence Mathew Tiller said inflationary pressures have continued to “accelerate across the globe and Australia has not been immune”.
The RBA said the resilience of the Australian economy was particularly evident in the labour market, with the unemployment rate declining to 4 per cent.
“Both job vacancies and job ads are also at high levels. The central forecast is for the unemployment rate to decline to around 3.5 per cent by early 2023 and remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years,” it said.
And it flagged that this would be just the first rise of many.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. 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,” it said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.