RBA lifts rates to highest level in 15 years - ABC News & Headlines – Australian Broadcasting Corporation

The RBA is trying to bring inflation down to 2-3 per cent. (ABC News: Daniel Irvine)

The Reserve Bank's Monetary Policy Board has lifted interest rates by 0.25 percentage points.

It lifts the cash rate target to 4.60 per cent, up from 4.35 per cent. It is the highest rate since late 2011.

The Bureau of Statistics will release its September inflation data tomorrow.

The Reserve Bank has lifted interest rates to their highest level in 15 years.

It has increased rates by 0.25 percentage points, which lifts the cash rate target to 4.6 per cent, up from 4.35 per cent.

It will be a blow to home owners with large mortgages. It is also the highest cash rate millions of households have faced since taking on a mortgage after 2011.

But individuals who have high-interest savings accounts will see their savings accruing more interest after today's decision, if their bank applies higher rates to their accounts.

The decision to lift rates was unanimous, with all nine members of the board voting in favour.

In recent weeks, senior RBA officials have been warning that they are losing patience with the time it is taking to drag inflation back down into the RBA's 2-3 per cent target range.

In July, headline inflation was running at an annual pace of 3.5 per cent and underlying (or "core") inflation was running at 3.6 per cent.

The RBA wants inflation sitting around 2.5 per cent on average, over the medium term.

But Australia is not alone in its struggle to get inflation down. 

In recent weeks, the European Central Bank, US Federal Reserve, Bank of Japan and Reserve Bank of New Zealand have all lifted rates.

The latest fighting in the Middle East has also sent crude oil prices higher in recent weeks, which has pushed more inflation around the world via higher fuel prices.

The RBA's decision to lift interest rates today comes one day before the Bureau of Statistics releases its September quarter inflation data.

In a statement, the RBA Board said it did not want high inflation to become embedded in Australia's economy.

It said since its last meeting, the conflict in the Middle East had broadened and global energy prices were now much higher.

It said AI-related demand was driving rapid growth in global prices for technology-related goods, and some Australian businesses were experiencing cost pressures and were either increasing prices or looking to do so.

It also said economic growth and inflation were both higher in Australia than had been expected, and interest rates needed to rise to reduce capacity pressures and bring inflation back to target.

"The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing," it said.

"But inflation is still too high and the Board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period.

"The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed," it said.

EY Oceania chief economist Cherelle Murphy said it was not a happy time for households.

She said consumer sentiment was at extremely low levels, lots of people had jobs but they did not feel like they were getting ahead, and the recent decline in house prices was making many families feel less wealthy.

"It's certainly going to hurt many households, this fourth interest rate hike," she told the ABC.

"But from the Reserve Bank's point of view, certainly what they see is hurting more is inflation continuing to be too high. As we know, it has been above the Reserve Bank's target band for a very long period now."

BetaShares chief economist David Bassanese said he thought the RBA would lift rates again in coming months.

"Ominously, the Bank noted that local firms are facing higher costs and are either raising prices or 'looking to do so'. This suggests that inflation could rise even further in the months ahead," he said.

"Sadly, Australia looks set for a period of stagflationary conditions, with weak growth alongside stubbornly high inflation.

"While inflation remains above target, the RBA has limited tolerance for price pressures becoming entrenched.

"In unwelcome news for mortgage holders, it's now my base case that the RBA is now a short-priced favourite to raise rates by 25 basis points on Melbourne Cup Day, taking the cash rate to 4.85 per cent," he said.