The Reserve Bank of Australia (RBA) has increased the cash rate from 4.35% to 4.60%.
This is the first increase since May and the highest level in nearly 15 years.
This will mean that repayments on most loans will be higher, and borrowing capacity will be lower.
In its statement today, the RBA said inflation remained elevated due to the Middle East conflict, higher energy prices and strong AI-related demand.
Background
The RBA is Australia’s central bank.
It meets eight times a year to assess the economy and set the cash rate.
The cash rate is what banks charge each other for short-term loans.
We usually refer to changes in the cash rate as the RBA changing interest rates, because the cash rate affects interest rates across the economy, including on home loans and car loans.
The higher the interest rate, the more expensive it is to borrow money, which means higher repayments on variable-rate mortgages.
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The idea is that making it more expensive to borrow will slow spending and, in turn, the rate of inflation.
For those who have savings accounts, the increased cash rate may also mean you earn more interest.
However, banks often ‘pass on’ the increase to savers slower than they do to borrowers.
Today’s decision
The RBA said it raised the cash rate to 4.60% because “recent inflation outcomes in Australia were stronger than expected” and “inflation expectations remain elevated”.
Inflation measures changes in the prices of goods and services.
It is currently 3.5%, above the RBA’s target range of 2–3%.
All nine members of the RBA’s Monetary Policy Board voted unanimously in favour of the increase.
The Board said it would increase the cash rate further if necessary.
