Households hit with interest rate rise

The Reserve Bank of Australia has this afternoon announced interest rates will rise by 50 basis points from 0.35 per cent to 0.85 per cent.

The RBA board held its monthly meeting today, opting for a higher-than-expected rise to combat rising inflation, global factors such as COVID-19, supply chain challenges and the war in Ukraine. It also mentioned the impact of a tight labour market and floods in eastern Australia.

It is the second rise in two months.

RBA Governor Philip Lowe said in a statement: "Inflation is expected to increase further, but then decline back towards the 2–3 per cent range next year. "Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago. As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Today's increase in interest rates will assist with the return of inflation to target over time.

"The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time."

It comes after Federal Treasurer Jim Chalmers told families to “brace for reality” and that inflation was likely to get worse before it eases.

He said medicines, childcare and power costs were areas of concern to be addressed in the October budget.