Interest rates pushed up as Reserve Bank targets high inflation

The Reserve Bank has increased official interest rates for the third time in three months as it attempts to bring inflation under control.

Following its regular board meeting today, the RBA lifted the official cash rate by 0.5 percentage points, taking it to 1.35 per cent. The bank has increased the cash rate by 1.25 percentage points in three months, the most aggressive tightening of monetary policy since 1994.

RBA governor Philip Lowe.Credit:Louie Douvis

On an $800,000 mortgage, the increase will add $230 to monthly repayments.

Since the RBA started lifting rates in May, the cumulative increase in repayments on an $800,000 mortgage is now $550.

The RBA started lifting interest rates in a bid to combat inflation, which is currently at 5.1 per cent. RBA governor Philip Lowe has previously said the bank expects it to reach 7 per cent by the year’s end.

Ahead of the decision, there were more signs of the inflationary pressures hitting parts of the economy.

The Australian Industry Group-HIA performance of construction index, released on Tuesday, slipped 4.2 per cent in June to fall into negative territory.

Employment, new orders and housing activity all dropped in the month. HIA senior economist Nicholas Ward noted there was still a strong pipeline of activity for the sector but cost pressures were growing.

“Materials and labour shortages continued to weigh on home building in June. These constraints have resulted in increases in the cost of construction and extended build times,” he said.

Consumer confidence has also continued to fall. The latest ANZ-Roy Morgan survey showed consumer confidence dropped 1.2 per cent last week while weekly inflation expectations rose 0.2 percentage points to 5.9 per cent.

ANZ head of Australian economics David Plank said expectations the RBA would lift interest rates at its Tuesday meeting could be a reason behind the easing confidence rate.

Financial markets still believe the cash rate will be at 3 per cent by the end of the year.

More to come

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