The Reserve Bank has heaped more pain on borrowers, extending its record run of interest rate rises to a 10th consecutive increase in its bid to drive down inflation.
As widely expected, the central bank raised its cash rate at its monthly board meeting on Tuesday by 25 basis points to 3.6%, the highest level since mid-2012.
The rate is set to rise further but the RBA dropped its reference to needing multiple rises in coming months.
“The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,” the RBA governor, Philip Lowe, said in a statement.
“In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”
The RBA has now lifted the key rate by 3.5 percentage points since kicking off increases from a record low 0.1% level during last May’s federal election campaign.
If passed on in full by commercial banks, the cost of additional repayments on a typical $500,000 mortgage will have increased by about $1,000 per month since May, data groups say.
Australia, along with most other major economies, has been facing the highest inflation since the 1990s triggered by hefty Covid-19 stimulus spending and disruption to energy and food markets due to Russia’s invasion of Ukraine a year ago.
Indications that the rate rises to date are begin to sap excessive demand in the Australian economy include slower-than-expected economic growth in the December quarter and a drop in the monthly inflation rate for January.
The less hawkish outlook from Lowe and the RBA board on Tuesday was interpreted by investors to imply the central bank may soon pause or even reach its maximum cash rate during this part of the cycle.
The Australian dollar fell about one-fifth of a US cent to US69.2c within moments of the verdict being made public.
Australian shares also picked up about 0.5% as investors also pared their expectations of how high the RBA would go. Higher borrowing costs typically squeeze company profits.
More to follow