The country’s central bank raised the cash rate by 0.1 to 0.35 percent in its board meeting on Tuesday, the first time since 2010 that interest rates have increased.
RBA Governor Philip Lowe said there is evidence of an uptick in wage growth and the economy is proving resilient, with inflation rising faster than expected.
While Tuesday’s rate hike was the first in nearly 12 years, Mr. Lowe said interest rates would rise further.
“It is not unreasonable to expect interest rates to normalize during this period, allowing them to rise to 2.5 percent,” he said.
“It will be a more normal level. How fast we get there will be determined by events.”
Interest rates were raised during an election campaign for the first time since 2007 when then-Prime Minister John Howard said he regretted the increase.
Speaking to reporters in Melbourne with Treasurer Josh Frydenberg, Scott Morrison said he understands the effect the rate hike will have on mortgage holders.
“Of course I sympathize with it (the rate hike effect)… and we expressed our concern about what we did in this year’s budget,” the prime minister said.
“I sympathize with Australians as they face high pressures of living. I sympathize with Australians when they face overpayments on their homes.”
Mr. Lowe said the election campaign, now in its fourth week, had no bearing on the Reserve Bank’s decision to raise the cash rate, emphasizing the independence of the bank.
“The election had no effect on today’s decision, the Reserve Bank was given a mandate by Parliament to ensure price stability, achieve full employment and promote the economic well-being of the Australian people,” he said.
“We do not take into account the political situation, we do what is right for the country.”
Mr Morrison said Australians may have been preparing for a hike in interest rates for some time, given historically low levels.
“A 25 basis point increase in the cash rate, for those who will pay more, it will be difficult, and we understand that,” he said.
“That’s why tax reduction has been and continues to be a major objective of our government.”
Labor leader Anthony Albanese said it was already difficult to survive under Mr. Morrison.
“Today it has become even more difficult for millions of Australians,” he said.
“Australians were already facing the full cost of living on their watch before today’s decision. Scott Morrison’s economic credibility was already poor, now it is completely broken.”
Shadow Treasurer Jim Chalmers said the coalition was focused on politics, despite Mr. Morrison saying it had nothing to do with political interests.
“They see it exclusively as a political challenge,” he said.
“Scott Morrison says he’s not focused on politics, is like Homer Simpson in that he’s not focusing on donuts.”
ACTU Secretary Sally McManus said house prices have risen six times faster than wages under the Morrison government.
“If Scott Morrison had not completely disappeared into the action on wages, Australian workers would have been better prepared for today’s interest rate hike while paying off a mortgage,” she said.
Assistant Treasurer Michael Sucker said there was an expectation that property prices would be lower during the COVID-19 pandemic.
“Moderation in house price growth is something I’ve been talking about for months,” he told Sky News.
Business Council of Australia chief executive Jennifer Westacott said the decision underscores global instability.
“The RBA has drawn a line under two years of emergency pandemic settings now requiring action to manage the rising cost of living pressing everyday Australians,” she said.