The Reserve Bank of Australia has raised its official cash rate by 25 basis points to 3.85%, defying market expectations of a pause. The decision, announced on Tuesday, marks the 11th increase since May last year, bringing total tightening to 3.75 percentage points.
RBA Governor Philip Lowe stated that inflation, while past its peak at 7%, remains too high and further action was warranted to return it to the target range within a reasonable timeframe. The move surprised investors, sending the Australian dollar higher and stocks lower.
Treasurer Jim Chalmers acknowledged the difficulty for borrowers, calling the decision a reminder that inflation is the primary economic challenge. He indicated the upcoming budget would focus on cost-of-living relief without adding to inflationary pressures.
The board considered factors such as a tight labour market, strong population growth, and rebounding property prices, despite weaker-than-expected inflation data. Lowe warned that further tightening may be required depending on economic developments.
The rate rise drew criticism from the ACTU, with secretary Sally McManus calling it a bad decision, arguing that inflation is driven by supply chain issues and corporate price gouging rather than domestic demand.
