A further interest rate rise is widely expected in March following the Reserve Bank of Australia’s (RBA) decision on Tuesday (February 7) to lift the cash rate to 3.35%.
It is the highest level for the cash rate since September 2012.
In announcing a 25 basis point lift, the RBA board said it expected more rate hikes in coming months to return inflation to its target.
Inflation is sitting at 7.8% – its highest level since 1990 – and the central bank is aiming to get it back within its target band of 2% to 3%.
“High inflation makes life difficult for people and damages the functioning of the economy,” the RBA said in its statement on Tuesday.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.”
Federal Treasurer Jim Chalmers said there is growing evidence inflation is expected to have peaked and is starting to moderate.
“It’s our job to focus on the broader pressures that are coming at us from around the world and being felt around the kitchen tables of this country,” Dr. Chalmers told parliament.
He said the government’s plan involves delivering cost-of-living relief that did not add to inflation, dealing with supply chain issues and showing budget spending restraint.
Financial comparison site RateCity says the average borrower with a $500,000 loan is now paying an extra $908 a month since the start of the interest rate hikes last May.
For a $750,000 loan, the latest rate increase will require $1362 more a month since May.
The RBA said global inflation remained “very high” but was moderating in response to lower energy prices, the resolution of supply chain problems and the tightening of monetary policy.
It forecast inflation measured in the consumer price index would decline to 4.75% this year and to about 3% by mid-2025.
With Australian Associated Press