The Reserve Bank of Australia (RBA) has today lifted the cash rate target by 50 basis points to 85 basis points (0.85 per cent), surprising the market with a rate rise double that expected by most commentators.

The Reserve Bank of Australia (RBA) has today lifted the cash rate target by 50 basis points to 85 basis points (0.85 per cent), surprising the market with a rate rise double that expected by most commentators.

The RBA’s dramatic move was made in response to stubborn inflation figures that it sees worsening unless the period of historically lower interest rates is put to an end.

“Inflation in Australia has increased significantly (and) while inflation is lower than in most other advanced economies, it is higher than earlier expected,” RBA Governor Philip Lowe said in his monthly Monetary Policy Decision.

“Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation but domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices.

Mr Lowe noted that the floods earlier this year have also affected some prices.

“Inflation is expected to increase further, but then decline back towards the 2–3 per cent range next year.

“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago.

“As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.”
The stock market responded by dropping 1.5 per cent, while the Aussie dollar climbed.

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