Australian borrowers hit again as RBA raises interest rates by 25 basis points to 2.85% | Australia news

Australia’s borrowers have been slugged with a record seventh rate rise from the Reserve Bank in as many months, as the central bank tries to quell the nation’s strongest burst of inflation in 32 years.

The RBA on Tuesday lifted the cash rate by 25 basis points to 2.85%, the highest since early May 2013. The increase was in line with most economists’ expectations.

Markets had rated another rate rise as all but a certainty after the September consumer price index rose to 7.3%, higher than market forecasts.

“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8% later this year,” Philip Lowe, RBA governor, said. “Medium-term inflation expectations remain well anchored, and it is important that this remains the case.”

The RBA has now lifted its cash rate by 275 basis points since May, a rate of increase that matches the previous record spate during the second half of 1994.

“The board has increased interest rates materially since May,” Lowe said. “This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target. The board expects to increase interest rates further over the period ahead.

Prior to today’s decision, projections by the four major banks had the RBA’s cash rate peaking at between 3.1% and 3.85%.

Australia was the first major nation to reduce the pace of interest rate rises in October when the Reserve Bank went with a 25bp hike after four 50bp rises in a row. By contrast, the US Fed is expected to clock up four consecutive 75bp increases this week.

With the jobless rate hovering near half-century lows at 3.5%, the RBA will be watching closely what happens to salaries. The pricing behaviour of companies will also be a focus.

“Wages growth is continuing to pick up from the low rates of recent years, although it remains lower than in many other advanced economies,” Lowe said.

“A further pick-up is expected due to the tight labour market and higher inflation.

“Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead,” Lowe said.