The Reserve Bank of Australia (RBA) has raised rates for the fourth time this year from 1.35% to 1.85%, a rise of 50bps.
This was the fourth consecutive rise following a rise to 0.35% in March, 0.85% in April and 1.35% in May.
Announcing the rise, RBA governor Philip Lowe said: “Today’s increase in interest rates is a further step in the normalisation of monetary conditions in Australia.
“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy. The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path”.
Anthony Doyle, head of investment strategy at Firetrail Investments, said: “With inflation running at a 21-year high of 6.1%, it was unsurprising that the RBA raised interest rates by another 0.50% to 1.85% today. It is anticipated that there are further rate hikes to come, with inflation likely to rise further over the remainder of the year given increases in electricity, gas, and food prices.
“With households facing an environment of high inflation, rising mortgage rates and falling house prices, a weakening in demand growth will be a welcome development for the RBA as it attempts to wrestle inflation under control.”
Ellen Gaske, lead economist at PGIM Fixed Income, said: “In our view, there hasn’t been anything in the data to suggest a slowdown in the pace of rate hikes. On the other hand, there are enough mixed signals to suggest a stepped-up 75 bp rate hike may not be prudent. At its current pace, the RBA is set to bring the policy rate to 2.5%, its estimated neutral rate, in short order without a jarring 75bp hike”.
Last week, Treasurer Jim Chalmers said he expected inflation to remain high for the remainder of the year.
Inflation was expected to peak at 7.75% in the December quarter before dropping back to 5.5% in June 2023 and 3.5% in December 2023.
