The Reserve Bank board has lifted interest rates by another 25 basis points (0.25 percent) to 4.6 percent, the highest point in 15 years.
It warned that it would not hesitate to lift rates even further if inflation did not come back into the target zone (under three percent)
In a statement, the board said that Inflation remained elevated and some of the upside risks flagged in August were materialising.
“There have been further disruptions to global oil supply and recent data suggest that growth and inflation in Australia have been higher than expected,” the board said.
“Higher fuel prices have partially been passed through to prices of other goods and services. This inflation impulse is in addition to the effect of capacity pressures in the economy.”
The Board, which voted unanimously for the increase, said it would continue to do whatever necessary to bring inflation sustainably back to the target range.
“The Board remains focused on ensuring that high inflation does not become embedded,” it said.
“To achieve this, growth in aggregate demand needs to remain subdued for a period to reduce capacity pressures and bring inflation back to target.
“The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing.
“But inflation is still too high and the Board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period.”
CPA Australia said the Reserve Bank’s decision to increase interest rates to a 15-year high would add to the pressure on households and small businesses already grappling with persistent inflation, rising operating costs and subdued consumer demand.
CPA Business Investment Lead Gavan Ord said while the increase was expected, it would deliver another blow to borrowers and businesses operating in an increasingly challenging economic environment.
“Today’s interest rate increase will be deeply frustrating for households and businesses already struggling with cost-of-living pressures and higher borrowing costs,” Mr Ord said.
“For many small businesses, the pressure is coming from every direction: higher interest repayments, persistent inflation, volatile fuel prices, rising operating expenses and subdued consumer demand.”
CPA Australia said governments should prioritise responsible spending and meaningful reforms that improve productivity, encourage business investment and restore confidence.
“As the Reserve Bank Governor recently noted, monetary policy cannot solve Australia’s productivity challenge. Governments must focus on reforms that reduce unnecessary compliance costs and make it easier for businesses to invest, innovate and grow,” Mr Ord said.
Chief Advocacy Officer of Anglicare Sydney Dr Rob Stokes said the rate rise would be felt hardest by people already living “on the edge”.
“The banks pass on rate rises. Landlords pass on higher costs. Developers pass up new housing opportunities. But people on low incomes have nobody left to pass the burden onto,” said.
“The Reserve Bank has a job to do on inflation, but governments can make sure the people with the least are protected. The surest way to do that is to keep building social and affordable housing.”
The full Reserve Bank statement is here
