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RBA increases the cash rate for the first time since November 2010, as inflation surges to 20 year high
The Reserve Bank of Australia has inched up the cash rate from its historic low level of 0.1%, up by 25 basis points to 0.35%.
The move has come two years earlier than the Reserve Bank of Australia (RBA) in its forecasts last year, as inflation has accelerated, surging to 5.1% for the year to March, while underlying inflation hit 3.7%.
It is also the first movement for the cash rate since November 2020, when the RBA slashed it from 0.25% and began broad quantitative easing. The last time the rate increased was more than a decade ago, in November 2010.
Previously, the central bank had indicated that it would not raise until annual inflation was “sustainably” within its target range of 2 to 3%, which would have required annual wages growth to rise above 3%.
The RBA’s internal indicators of wages growth have also picked up, so incoming wages data from the Australian Bureau of Statistics (ABS) due on 18 May is expected to follow the trend.
By moving today, rather than waiting for further data in June, the RBA is signalling that it will intervene to curb stronger than expected inflationary pressures, despite the ongoing federal election campaign.
While the RBA seeks to remain independent from politics, failing to adjust policy may have been viewed as a greater political intervention.
This increase will be the first of a series through 2022 and that the movements will weigh on house price growth, that has already slowed in anticipation of higher borrowing costs.
It is predicted the cash rate will continue to rise between 2 to 3% over the next 12 to 18 months.
40% of all outstanding mortgages are currently on fixed rates, with a sizeable portion due to expire later in the year.
Many will have to start considering their refinance options sooner rather than later.
