RBA lifts interest rates to 2.60%

Following the Reserve Bank of Australia’s October board meeting on Tuesday afternoon, RBA Governor Philip Lowe confirmed a 25 basis point increase, lifting the official interest rate to 2.60 per cent.  

The driving factor that contributed to the cash rate increase in Australia is inflation, which has hit 6.1% year on year, making it the highest it has been since the early 1990s. 

The rise in inflation is a result of the recent increases in prices for electricity, gas, and petrol, in conjunction with other general costs of living increases.

Global factors, Covid-related disruptions to supply chains, and domestic issues have also placed pressure on inflation leading to the cash rate being increased.

As the Australian economy is expected to grow this year continually, the Board believes Inflation will peak towards the end of the year and then decline back towards 2-3 per cent. 

As a result of higher inflation and interest rates, pressure is being placed on household budgets, which will be felt in mortgage payments. It has been found that consumer finance and housing prices have also declined in most markets after the large increases.

It is projected that the RBA may continue to increase rates over the remainder of the year, in an effort to stabilise and eventually reduce inflation.

The Australian economy continues to be resilient. The unemployment rate in August was 3.5 per cent, the lowest rate in almost 50 years. Both job vacancies and job ads are also at high levels and a further decline in unemployment rates is expected over the coming months.

The board will be paying close attention to all contributing factors and how they balance out. In doing so they will be able to determine the right setting of monetary policy.

The RBA is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further increase in interest rates over the period ahead to help bring inflation back to target.