RBA raises interest rates 0.25%

The Reserve Bank has lifted official interest rates by 0.25 percentage points to 5.75 per cent. The rise will flow on to variable rate home loans and take the banks' standard variable rate to 7.57 per cent.

The more typical rate paid by Australian borrowers, as measured by the Infochoice Benchmark Variable Rate, will rise from 6.79 per cent to around 7.05 per cent. This will add about $17 dollars a month to loan repayments for every $100,000 in outstanding borrowings.

The RBA board has decided that a combination of healthy world economic growth, strong commodity prices for Australian primary industry, and rising consumer spending and borrowing here at home is pushing inflation up enough to warrant a rate increase.

“These domestic and international trends have added to inflationary pressures in an economy that has been operating for some time with rather limited spare capacity and low unemployment,” the RBA statement announcing the rate rise says.

“Wages growth, though not accelerating further recently, is higher than it was a year ago, and businesses are continuing to report that suitable labour is scarce. Raw materials costs continued to increase strongly in the March quarter, reflecting the general strength in global commodity prices. Consumer price inflation has picked up to around 3 per cent in recent quarters. While this partly reflected rising fuel costs, underlying consumer price inflation also increased in the March quarter, to around 2.75 per cent, a rate it had not been expected to reach until the second half of the year.

“Taking all of these developments into account, the Board judged at its May meeting that inflationary risks had increased sufficiently to warrant an increase in the cash rate.”