“Our government has put up an economic shield for Australians, Australian businesses, Australian jobs, and Australian incomes to get us through one of the worst crises we’ve seen a generation,” he said.
But the Reserve Bank said more rises were on the way.
‘This will require a further lift’
In his usual post-board meeting statement, RBA governor Philip Lowe indicated the shock surge in inflation in the March quarter left the bank little choice but to raise the emergency level record low 0.1 per cent rate.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up,” Dr Lowe said.
“Given this, and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.”
Shadow treasurer Jim Chalmers said it really didn’t matter when rates rose, Mr Morrison’s economic credibility was in tatters.
“This is the third wave of Scott Morrison’s cost-of-living crisis,” Dr Chalmers said. “This is a triple whammy of falling real wages, skyrocketing inflation, and interest rates are about to rise as well.”
The bank also updated its forecasts for unemployment and inflation. It now expects the jobless rate to hit 3.5 per cent by early-2023, headline inflation to hit 6 per cent later this year and underlying inflation to hit 4.75 per cent.
The RBA has faced criticism for being behind the curve after the COVID-19 crisis. Just six months ago Dr Lowe was insisting the cash rate would remain near zero until 2024 and dismissed financial markets pricing in multiple hikes in 2022 as “very unlikely” and an “over reaction” to inflation data.
He began singing a different tune in February and has increasingly become more hawkish. Last month, the governor indicated the first rate rise was likely in June, but the RBA wanted to see key economic data due in April and May, including inflation data on April 27, wages data on May 18 and June 1
But following last week’s high inflation release for the period from January to March, financial markets swiftly priced in back-to-back rate hikes in May and June, which would have taken the cash rate to 0.5 per cent by mid-year.
That would add about $100 a fortnight to the repayments on a $750,000 standard variable rate mortgage loan.
Financial markets also lifted expectations for where the cash rate would land by year’s end from 2 per cent to about 2.5 per cent; they then expect rates to rise to 3.4 per cent by September next year, equating to 13 hikes.
Headline CPI inflation surged to 5.1 per cent over the three months to March 31, while underlying inflation, the RBA’s preferred measure, spiked to 3.7 per cent, smashing the bank’s 2-3 per cent target, leaving many economists in no doubt the record low 0.1 per cent cash rate needed to rise.
“To not do so risks the RBA losing credibility,” EY chief economist Cherelle Murphy said at the time.