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The Reserve Bank board has lifted the official cash rate from 3.6 per cent to 3.85 per cent in a surprise move just a week out from the federal budget, amid signs households are continuing to feel cost-of-living pressures.
Financial markets had said there was a 100 per cent chance of the RBA holding the cash rate steady, and most economists also believed the bank would pause.
Reserve Bank governor Philip Lowe.Credit: James Brickwood
The increase in the cash rate – now at its highest level in 11 years – comes a year after the central bank started raising it from the historic low of 0.1 per cent in a bid to tackle inflation.
Reserve Bank governor Philip Lowe said inflation, at 7 per cent, was still too high and would take some time to come back down to the bank’s target range of 2-3 per cent.
“The board’s priority remains to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy,” he said.
“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.”
The move will add almost $100 a month to the repayments on a $600,000 mortgage. The cumulative increase on repayments since the bank started lifting rates would then be more than $1300 a month.
Lowe also signalled the RBA expects the economy to slow more than expected. He said GDP is now forecast to expand by 1.25 per cent this year. In its February forecasts, the bank expected economic growth of 1.6 per cent through 2023.
Unemployment is expected to be around 4.5 per cent by the middle of 2025. It is currently 3.5 per cent. The Reserve Bank will on Friday release its latest quarterly economic forecasts.
More to come
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