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The Reserve Bank has raised the cash rate to its highest level in 10 years

The Reserve Bank has raised the cash rate to its highest level in 10 years

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The Reserve Bank of Australia (RBA) increased the cash rate from 2.85% to 3.1% today.

The RBA has now increased the cash rate for the eighth month in a row. The cash rate also increased by 0.25 percentage points last month.

This is what that means.

What is the cash rate?

The cash rate is the rate of interest the RBA charges banks for short-term loans.

We usually refer to changes in the cash rate as the RBA raising interest rates, because the cash rate affects interest rates all over the economy.

The RBA does this to battle inflation (rising prices). Higher interest rates make it more expensive to borrow.

What did the RBA say?

In a statement announcing the rate rise, RBA Governor Philip Lowe said inflation remains “too high”. The RBA expects it to peak at 8% around the end of the year and decline next year.

He warned further interest rate increases would be needed next year, but added these were “not on a pre-set course”.

He also warned that the path out of inflation towards a “soft landing for the economy” is “narrow”.

Government forecast

In October, the Federal Budget forecasted interest rates would peak at 3.35% early next year.

One more interest rate increase of 0.25 percentage points would reach this level.

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