The Reserve Bank of Australia (RBA) has raised interest rates for the third consecutive month in a row, rising 0.50% in July.

The central bank has now raised interest rates by 1.25% in three months, bringing the official spot rate to 1.35% as it aggressively tries to control inflation.

The bank also raised interest rates on its Exchange Settlement balances by 50 basis points to 1.25%.

In his statement following the decision, Governor Philip Lowe said global monetary policy is in response to higher inflation, but “it will take some time for inflation to return to target in most countries,” taking into account both global and domestic factors. such as a tight labor market , flooding and capacity constraints in some sectors contribute to the upward pressure on prices.

There was little change in its June statement, when the RBA decided to raise interest rates by 0.5%.

He says inflation is expected to peak later this year and then fall back to the 2-3% reach in 2023.

“Higher interest rates will also help create a more sustainable balance between the supply and demand of goods and services,” Lowe said.

“The Australian economy remains resilient and the labor market is tighter than it has been for a while. The unemployment rate remained stable in May at 3.9%, the lowest rate in nearly 50 years. Unemployment has also fallen significantly. Vacancies and vacancies are both at a very high level and a further decline in unemployment and underemployment is expected in the coming months.”

Lowe said household spending behavior is an “ongoing uncertainty” for the economic outlook.

“Household budgets are under pressure from higher prices and higher interest rates,” he said.

But while house prices have started to decline in some markets in recent months, the household savings rate remains above pre-pandemic levels and “many households have built up large financial buffers and are benefiting from stronger income growth”.

Lowe noted that additional increases are in the pipeline in the coming months.

“The magnitude and timing of future rate hikes will be determined by incoming data and the board’s assessment of the outlook for inflation and the labor market,” he said.

‘Challenging news’

New federal treasurer Jim Chalmers responded that the rate hike is “very challenging news” that will add about $137 a month to a $500,000 mortgage.

“While the trajectory of rising interest rates was set before the election, this rate hike is another blow to workers and families who are already under significant livelihood pressures,” Chalmers said.

“When it comes to inflation, we expect it to get worse before it gets better, and the Reserve Bank has signaled further rate hikes.”

Last week, the country’s leading mortgage lender, CBA, raised its flat rates by 1.4% for owner-occupiers and investors in a preemptive strike.

The new rate for a five-year fixed loan is now 6.69%. The one-year fixed interest rate is now 4.99%. Less than a year ago, when the RBA said it wouldn’t raise interest rates until at least 2024.

CBA’s lowest variable mortgage rate was reduced by 0.15% to 2.79%, but it is highly conditional and only applies to new customers with a 30% down payment.