The Reserve Bank of Australia has lifted the official cash rate to 0.85 per cent, an increase of 50 basis points or half a percentage point.
Look back on all of Tuesday's updates as they happened in our blog.
Key events
Live updates
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
We're going to close the blog here
Thank you for joining us this afternoon for our blog and for all of your questions.
We have more on the RBA's decision to increase interest rates and what it means for you on the ABC website.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Latest interest rates hike could push struggling families to the brink, welfare body says
The nation's peak welfare body says the latest interest rate hike could push those already struggling on low incomes to the brink.
In a decision that caught some by surprise, the Reserve Bank has lifted rates by half a percent to 0.85 per cent.
Peter Davidson from the Australian Council of Social Service says those at the lower end of the housing market are already battling to cover rising rental costs or mortgage payments.
He says there will also be a knock on effect for those in the private rental market where housing is in short supply.
"There's not much room to move for people on the lowest income support payments or those living on the minimal wage and a rent rise above $200, $300, $400 a week which are the lowest rates available in the country will push a lot of people over the edge," Dr Davidson said.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Treasurer predicts more pain before inflation is bought under control
Treasurer Jim Chalmers said the RBA's rate rise meant the government would face higher costs repaying its almost $1 trillion in debt.
He said the government would announce more cost of living measures when he hands down a budget in October.
"This cost of living crisis has been brewing for the best part of a decade," Mr Chalmers said.
"It will take more than two and a half weeks to turn around. We have been up-front about that.
"We want to work with Australians, we want to work with all parts of our economy to do what we can to get on top of this inflation challenge and the interest rate rises that accompany it."
There are forecasts the cash rate could hit 2.5 per cent by the end of next year.
If that happened, a borrower with a $500,000 loan balance could see their monthly repayments rise by $652 a month by Christmas next year.
"It is the universal expectation across economists, the government and the reserve bank that this inflation challenge will get harder before it gets easier," Mr Chalmers said.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Economist warns more rises to come
"To be clear, interest rates had to go up from the record lows, the emergency lows, they hit in COVID," he said on News Channel.
"That makes sense, how much and how fast, well, the Reserve Bank is clearly leaning towards more and sooner. And that may end up being what we need, but it's got to thread a needle."
"The risks are if you go too hard, too fast and we're already seeing consumer sentiment, the thing that we're looking to drive the economy, consumer spending, we're seeing that weaken quite a lot and quite fast, the Chinese economy weaken, there is a risk that they over-do it.
"The other risk is they underdo it and some of the inflation gets baked in and we need more pain stretched out over a long time. They're trying to thread that needle but so far they're leaning towards big increases happening fast."
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Treasurer: 'Just because it was expected doesn't make it easier'
Treasurer Jim Chalmers is on News Channel, he says it's a difficult day, particularly for homeowners with large mortgages.
"Just because this was expected today that interest rates would go up it doesn't make it easier for homeowners who have to find the money to service their mortgage at the same time facing those sky rocketing cost-of-living prices, whether it be energy, grocery prices or other inflationary pressures in the economy," Dr Chalmers says.
"It is a really difficult day. That's especially for homeowners who might have an especially big mortgage or who may not have built up the buffer others could do."
"A difficult day and a reminder and reflection of this serious inflation challenge that we have in the economy.
"I think it's almost universally expected now by the Reserve Bank, the Treasury, I've been speaking about this the last few days, that this inflation challenge looks more difficult than the Government said at the time of the last budget.
"We have high and rising inflation, rising interest rates, falling real wages and our ability to deal with some of these challenges is constrained by the fact that the budget is absolutely heaving with the trillion dollars of Liberal debt. Those are the challenges before us. We have some things going for us at the same time but serious choppy waters to navigate first."
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Here's how the markets are reacting
The Australian dollar briefly jumped above 72 US cents to a high of 72.45 US cents on the news of the surprise 0.5 per cent rate hike, after reaching a daily low of 71.60 over lunchtime.
But by 3:10pm AEST, it had lost its gains and was down one fifth of a per cent to about 71.76 US cents.
Meanwhile the Australian share market lose 1.7 per cent of its value after the decision was announced by the RBA.
At 2:45pm AEST, the All Ordinaries index had lost 1.7 per cent to 7,305, while the benchmark ASX 200 index had lost 1.7 per cent to 7,086 with all 11 sectors in the red.
All the banks were down, even though financial institutions benefit from higher interest rates because they lead to higher revenue.
National Australia Bank (-2.6pc) led the falls, followed by the Commonwealth Bank (-2.4pc), Westpac (-1.9pc) and ANZ (-1.4pc).
The best performers on the ASX 200 at 3pm AEST were copper miner Sandfire Resources (+2.6pc), chicken producer Ingham's (+2.3pc) and oil refiner Ampol (+2.1pc).
Leading the losses were buy now, pay later firm Zip (+14pc), pharmaceutical company, Clinuvel Pharmaceuticals (-6.7pc), and online bookmaker Pointsbet (-6.3pc).
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Who benefits from interest rates rising?
When interest rates increase, who pockets that money? The lender?
-Soon to be mortgage holder :/
With the increase in interest rates, where does the extra repayment amounts go. They certainly don't directly benifit the mortgage holder.
-Lance
Hello to you both!
Yes. Financial institutuions make money when interest rates are higher, but it's because when interest rates rise, the cost of borrowing money goes up which increases the base interest rate across the economy as a whole.
Banks will raise mortgate rates to cover the increase in the cost of money.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Reserve Bank lifts interest rates by higher-than-expected half a percentage point, causing more pain for borrowers
Here's our latest coverage from business reporters Nassim Khadem and Rachel Pupazzoni:
The Reserve Bank has increased interest rates with a 50-basis-points or half a percentage point hike, taking the cash rate target to 0.85 per cent — well ahead of most economists' expectations.
If passed on in full by the banks, the rate rise will add $133 a month on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1 million.
In early May, the RBA lifted Australia's official cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.
It marked the first rate rise in 11 years — since November 2010 — and forecasts are that the cash rate could hit 2.5 per cent by the end of next year.
If this happens, a borrower with a $500,000 loan balance could see their monthly repayments rise by $652 a month by Christmas next year.
In announcing the decision, Reserve Bank governor Philip Lowe said the rise was in response to the fact that "inflation in Australia has increased significantly".
Annual inflation increased to 5.1 per cent in the March quarter, driven by higher housing construction costs and fuel prices.
Dr Lowe said while inflation in Australia was lower than in most other advanced economies, it was still "higher than earlier expected".
Inflation was expected to increase further, he said, but would then decline back towards its 2 to 3 per cent target range by next year.
"Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago," he said.
"As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.
"Today's increase in interest rates will assist with the return of inflation to target over time."
Dr Lowe said the latest increase in interest rates by the board was "a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic".
"The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed," he said.
"Given the current inflation pressures in the economy, and the still very low level of interest rates, the board decided to move by 50 basis points today."
He said the Reserve Bank would likely keep raising rates over the months ahead.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Treasurer Jim Chalmers says the rate rise is 'difficult news for Australians'
Here's what Dr Chalmers had to say at his press conference:
"For an average mortgage of $330,000 remaining, it's about $87 a month that Australian homeowners will have to find.
For an average new mortgage, it's almost twice that, at about $157 a month. So this will be very difficult news for all of those Australians who are already facing skyrocketing costs of living in this country.
When interest rates went up, was made by the Reserve Bank clear that rates of dropping further. Rising interest rates and falling real wages as well.
And in addition to the pressure it will put on family budgets, we will also make it more expensive for the Commonwealth government to service that trillion dollars of debt in the budget. We do have some things going for us in the labour market and in terms of relatively strong household demand.
We have an incredibly difficult challenge of combinations. High and rising inflation, rising interest rates, falling real wages at a time when our ability to respond to these challenges is constrained by the fact that the budget is absolutely heaving with Liberal debt."
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Treasurer Jim Chalmers is holding a press conference
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
The rate hike was bigger than expected
Our senior business correspondent Peter Ryan says the announcement by the RBA was all about inflation.
Here's what he had to say on News Channel:
The tone is definitely much more hawkish, and in the statement the Reserve Bank governor makes the point that it's all about inflation, inflation, inflation.
Making the point that this is the end of the extraordinary monetary policy stimulus that we saw introduced going back to March 2020 when the pandemic hit. That stimulus has been withdrawn.
This is a very important part of the context, having had rates close to zero, down to 0.1 per cent. We can expect more, the Reserve Bank getting back to the point of perhaps being round about 1.6 per cent early next year, expecting a cash rate much, much higher, 3 per cent in the coming year.
It's going to put an extraordinary pressure on households. Interest rates are a blunt instrument, hurting households and businesses at a time when cost of living pressures are really eating into household budgets.
There is really no other choice and the Reserve Bank board has made the point that they really need to get inflation [under control] which is why we had this unexpectedly high increase in the cash rate of 0.5 per cent.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
The new cash rate is 0.85 per cent
The Reserve Bank has increased interest rates, with a 50-basis-point hike taking the cash rate target to 0.85 per cent — well ahead of most economists' expectations.
If passed on in full by the banks, the rate rise will add $133 a month on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1 million.
In early May, the RBA lifted Australia's official cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.
It marked the first rate rise in 11 years – since November 2010 – and forecasts are that the cash rate could hit 2.5 per cent by the end of next year.
If this happens, a borrower with a $500,000 loan balance could see their monthly repayments rise by $652 a month by Christmas next year.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Watch our coverage on the interest rate announcement here
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
How does raising interest rates affect inflation?
This may seem really dumb, but why does increasing the interest on mortgages combat inflation?
-Confused
Hey Confused, it's not a silly question at all! It can be quite a complex topic but here are the basics.
When the RBA increases interest rates, many people will need to cut back on spending and tighten their budgets.
As they rein in spending, companies need to respond to a change in consumer demand and adjust their prices accordingly.
The RBA will typically keep increasing interest rates until inflation slows down.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
How will an interest rate increase impact my mortgage?
ABC Business reporter David Chau told News Channel a rate hike is almost guaranteed today. Here's what he had to say:
Let's say you have a $1 million mortgage and there are five or six rate hikes from the RBA taking the cash rate to 1.75 per cent. That person will have to pay an extra $885 per month.
Let's say by the end of next year, the cash rate hits 2.5 per cent. That is an extra $1300 per month.
Reuters and Bloomberg did a survey of major economists. They are pretty much evenly split on the magnitude of today's rate hike.
Half of the group think it will be a 25-basis-point hike, a quarter of one percentage point. That is a business-as-usual increment.
If the Reserve Bank hikes by a bigger than expected amount, say, 40 basis points, that would signal it is worried about inflation levels.
There is a small handful of economists who think it will go even more aggressive, like 50 basis points, this afternoon, which would signal the RBA is very worried about inflation.
It will have a big impact on household budgets with successive RBA hikes.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
Analysis: Interest rates are rising, risks are growing, the government needs to tread carefully
Last week, the Bureau of Statistics released its economic growth data for the March quarter.
It showed the economy grew by 0.8 per cent in the first three months of this year, and by 3.3 per cent annually, which beat analyst forecasts.
Federal Treasurer Jim Chalmers said there were "pleasing elements" in the numbers, because strong demand was being supported by a tight labour market.
However, he warned, the headline figures masked a worrying reality.
"The National Accounts are notoriously backward-looking," the Treasurer said.
"If you think about what's happened in our economy since the end of March: inflation is higher, we've had an interest rate hike, petrol prices are up 12 per cent since the end of April, wholesale electricity prices are up 237 per cent since the end of March, gas is more than 300 per cent higher than the average of the last couple of years.
"We do have labour shortages. We do still have COVID absenteeism. And the international environment has become more challenging as well.
"There's no point mincing words about the sorts of conditions that we have inherited," he warned.
Those economic conditions are serious, and they're compounded by uncertainty.
Take a look at the minutes of the Reserve Bank board's May meeting, where its members agreed to lift the cash rate target in the middle of the federal election campaign.
The minutes include the word "risk" six times, variations of the word "uncertain" nine times, and "inflation" 39 times.
By Shiloh Payne
![](https://avatars.scribblelive.com/2022/4/17/feb5fd2c-a59c-425e-aaf8-c4db0d26e802.jpg)
When will the RBA's announcement be made?
When will we know what the RBA's decision is?
-Nicholas
Hey Nicholas, we're expecting an annoucement from the RBA around 2:30pm today.
As always, we'll keep you updated with the latest information right here on our blog.