The Reserve Bank of Australia (RBA) has raised interest rates for the first time this year, lifting its cash rate from 6.25% to 6.5% – the highest level in 11 years.
This rate rise will add around $50 per month to a $250,000 home loan, or $80 a month to a $400,000 mortgage, with standard variable mortgage rates set to rise to 8.3% from 8.05%.
Glenn Stevens, governor – monetary policy with RBA, said that the board made the decision due to a combination of factors, including declining unemployment rates, strong business and household confidence and higher-than-expected underlying inflation.
“For some months, the board has recognised that stronger economic conditions were likely to put upward pressure on inflation, notwithstanding some dampening influence from the higher exchange rate,” Stevens said.
“As a result, the board has been of the view that further monetary policy tightening could be required. The main factors that had allowed time for further consideration were that, prior to this month, the two most recent inflation results had been unexpectedly subdued and wages growth had remained moderate.
“However, the high CPI outcome for the June quarter indicated a less favourable near-term outlook, with the implication that any further increases in inflation would take place from a higher starting point than previously envisaged.
“Based on these considerations, the board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term.”
Leading economists had anticipated the move following an unexpected spike in inflation during the June quarter, well before the RBA had previously predicted.
This is the ninth consecutive interest rate rise since May 2002, and is the longest single period of rates increases since the late 1980s.
Rates are now at their highest level since November 1996.