The Reserve Bank has raised the cash rate to its highest level since 2013

The Reserve Bank of Australia (RBA) increased the cash rate from 2.6% to 2.85% today.
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The Reserve Bank of Australia (RBA) increased the cash rate from 2.6% to 2.85% today.

The RBA has now increased the cash rate for the seventh 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?

While announcing the rate rise, RBA Governor Philip Lowe said that continual rate rises have been “necessary to establish a more sustainable balance of demand and supply in the Australian economy”.

Lowe said that future interest rate increases would be decided by incoming data and the RBA Board’s assessment of inflation and unemployment.

Government forecast

Last week’s Federal Budget forecasted interest rates to peak at 3.35% by early next year.

Inflation rates are predicted to peak at 7.75% at the end of this year.

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