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The Reserve Bank Board has gone for another small interest rate rise, lifting the cash rate target by 25 basis points to 2.85 per cent.
It’s the seventh consecutive monthly rise, taking the rate from a record low of 0.1 per cent in May to a nine-year high.
Major banks are expected to pass on the increase, which will lift the cost of a $750,000 25-year mortgage by $112 a month.
Reserve Bank Governor, Philip Lowe, said inflation in Australia is too high.
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“Over the year to September, the CPI inflation rate was 7.3 per cent, the highest it has been in more than three decades.
“Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.
“Returning inflation to target requires a more sustainable balance between demand and supply.
“The Board has increased rates since May. This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target.
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Mr Lowe said inflation will increase further before beginning to fall next year.
“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around eight per cent later this year.
“Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices, and slower growth in demand.
“The Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade.
“Economic growth is expected to moderate over the year ahead as the global economy slows, the bounce-back in spending on services runs its course, and growth in household consumption slows due to tighter financial conditions.”
Mr Lowe said higher interest rates and higher inflation are putting pressure on the budgets of many households.
“Consumer confidence has also fallen and housing prices have been declining following the earlier large increases.
“Working in the other direction, people are finding jobs, gaining more hours of work and receiving higher wages.”
Main points
- Interest rates rise by 25 basis points to 2.85 per cent
- It's the seventh consecutive monthly increase
- RBA says further rises likely as inflation is still too high
