The RBA has increased the cash rate by 25 basis points to 0.35 per cent because "now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic".
"The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected," it said announcing the decision. "There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions."
AMP Capital chief economist Shane Oliver said with inflation blowing out to above 5 per cent and full employment, it was now only a matter of time before official wages data picked up. Mr Oliver, who correctly predicted that rates would rise this month, said delaying the increase would have risked a “rise in in inflation expectations, making it harder to get inflation back down”.
CPA Australia policy and advocacy chief Gavan Ord said the rate raise came as no surprise and businesses should plan now for further increases in the coming months.
"Given we are now moving into an environment of rising interest rates, businesses should be assessing and managing their interest rate risk. They can do this by calculating the impact various interest rate movements will have on their borrowing costs," he said.
"If calculations show that your business may be vulnerable at higher rates, consult your lender early. There may be ways of reducing such risk, for example through locking in a fixed interest rate."
He said businesses selling consumer discretionary items should do some scenario analysis around how higher interest rates might impact spending in their business, and consider steps to mitigate the impacts.
The national leader of finance solutions at BDO, Darren Stacey, said borrowers should take a closer look at their funding arrangements and make some changes to stay ahead of future increases.
“Borrowers should start shopping around for the best deal," he said. "If their financial position has improved since they last spoke to their bank, they should approach them again. They may be eligible for a lower interest rate which will offset some of the potential cash rate rises.”
“They should also review their arrangements and stop paying for things they do not need. Certain loan features, such as lines of credit or offset accounts, all come with a higher interest rate. If you can simplify your arrangements and qualify for a cheaper loan, this will shield you from some of the pain of rising rates.”
The RBA said the unemployment rate declining to 4 per cent showed the resilience of the Australian economy, and it flagged further rate rises.
"The central forecast is for the unemployment rate to decline to around 3.5 per cent by early 2023 and remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years."
"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. The board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases."