RBA announces major interest rate rise
The Reserve Bank of Australia has lifted its official interest rate to 4.1 per cent, an increase not seen since early 2012.
The bank’s board chose to lift the cash rate target by 0.25 of a percentage point for the second month in a row amid concerns that inflation is taking too long to decrease.
The latest monthly consumer price index from the Australian Bureau of Statistics saw prices rise 6.8 per cent from 2022 to April 2023, up from the March reading due to statistical uncertainties caused by last year’s temporary fuel excise cut.
Reserve Bank governor Phillip Lowe warned the public about rising costs of services including hospitality which are labour intensive and vulnerable to increased wages.
"Recent data indicate that the upside risks to the inflation outlook have increased and the board has responded to this," he highlighted in his post-meeting statement.
"While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas. Unit labour costs are also rising briskly, with productivity growth remaining subdued.”
Lowe noted the most recent and bigger than expected rise in minimum and award wages, which was the highest increase in decades.
"Wages growth has picked up in response to the tight labour market and high inflation," he explained.
"At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.”
The interest rate spike will add around $76 a month to the repayments on a $500,000 loan, and double that on a million-dollar 25-year mortgage.
Someone with $500,000 owing on their home loan will see their monthly repayment increase by around $1,134 a month since the RBA started lifting rates from a record low of 0.1 per cent in May 2022.
However, there is still the risk of another rate rise.
"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve," Lowe warned.
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