The Reserve Bank of Australia (RBA) has raised the cash rate by 25 basis points up to 3.35 per cent in its ninth consecutive rate hike.
It is the fourth month in a row the RBA has raised it by that amount.
RBA Governor Phillip Lowe said in a media release that the Board’s priority is to return inflation to target.
“High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.,” he said.
“The Board is seeking to return inflation to the two to three per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”
In Australia, Consumer Price Index (CPI) inflation over the year to the December quarter was 7.8 per cent, the highest since 1990. The central forecast is for CPI inflation to decline to four and three-quarters per cent this year and to around three per cent by mid-2025.
Mr Lowe said the Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.
“In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” he said.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
The RBA’s stance on addressing inflation has sparked debate, with Property Club, Australia’s largest independent property investment group, declaring they believe the RBA Board should be sacked.
President of Property Club Kevin Young said the latest increase in interest rates was tantamount to playing ‘Russian Roulette’ with the Australian economy.
“Research has shown that an estimated 1.1 million mortgage holders are already at risk of mortgage stress in the three months to December 2022. Rental stress is also at record levels as record-low vacancy rates drive up weekly rents in many cities and towns by over 20 per annum. It will get even worse as landlords continue to pass on higher interests in the form of higher rents to tenants,” he said.
“This latest interest rate rise will help send Australia into a financial crisis similar to 2008/2009 that Property Club similarly warned would happen even back then following a string of crazy interest rate rises by then RBA Governor Glenn Stevens.”
