The Reserve Bank of Australia (RBA) has surprised some by raising the cash rate by 25 bps to 3.85 per cent, following last month’s decision to pause at 3.60 per cent.
The RBA had previously stated that a May rate hike was possible pending further economic data.
While many economists and the money markets expected another pause, the RBA’s decision to raise rates again comes as ABS data shows inflation remains high at 7 per cent, although reducing somewhat from its 33-year record peak of 7.8 per cent, still remains well above the central bank’s target range of 2-3 per cent.
Speaking at a community dinner last night, Dr Lowe said that the core reasons why the rates were raised again were:
- Persistent inflation in the services sector (as opposed to goods) which can be stickier over the long term.
- The low jobless rate.
- The resurgence in house price was a concern.
If inflation sticks around for a long time, rates will keep rising and there will more pain spread over a longer period, so the RBA continues to walk a tricky path.
With lenders likely to pass on the increase, it’s a good time to review your mortgage strategy and risk management measures.