Reserve Bank of Australia hikes rates for first time in 11 years

Australian Prime Minister Scott Morrison faces more pressure as interest rates rise. Photo / AP

The Reserve Bank of Australia today announced it would lift Australia's official cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.

While a rate rise was widely expected, most experts predicted a far more modest increase of 15 basis points.

It is the first rate rise in 11 years - since November 2010 - and is a desperate attempt to clamp down on skyrocketing inflation, which has reached an annual rate of 5.1 per cent and has sent prices climbing at the fastest rate in two decades.

It is also the first rate rise during an election campaign since 2007, when John Howard lost out to Kevin Rudd.

The nation's cash rate has been sitting at the historic low of 0.1 per cent since 2020, when it was slashed in response to the Covid-19 crisis.

In a statement released immediately after the decision, RBA boss Philip Lowe said "now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic".

"The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected," Lowe explained.

"There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.

"The resilience of the Australian economy is particularly evident in the labour market, with the unemployment rate declining over recent months to 4 per cent and labour force participation increasing to a record high.

"Both job vacancies and job ads are also at high levels. The central forecast is for the unemployment rate to decline to around 3.5 per cent by early 2023 and remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years."

While noting that "the outlook for economic growth in Australia also remains positive", Lowe said there were "ongoing uncertainties" about the global economy rising due to the Covid pandemic, the war in Ukraine and "declining consumer purchasing power from higher inflation".

Lowe also gave an ominous hint at things to come.

"The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead," he said.

"The board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases."

- News.com.au