Big question looms over rate hike

The central bank on Tuesday lifted the cash rate by 0.25 to 2.6 per cent, its highest level since 2013 and a sixth consecutive monthly increase.

The increase was slightly lower than expected, with the market widely tipping a 0.50 hike.

Asked if he was worried the RBA’s decision to ease off on this month’s interest rate rise could jeopardise efforts to fight inflation, the Treasurer said he didn’t “second guess” the central bank’s decisions.

“They’ve made it clear in their own statement today that they think that there is more work to be done by tightening interest rates,” Dr Chalmers told reporters.

“That remains to be seen whether that’s the case or not.

“Our own Treasury forecasts expect inflation will get worse before it gets better, but it will get better and it will moderate during the course of next year.”

Dr Chalmers made the remarks a week before he travels to the US to meet with international counterparts and about three weeks before he delivers his first federal budget.

Australia recorded an annual inflation rate of 6.8 per cent in August, down from 7 per cent in July, according to data from the Bureau of Statistics released last week.

RBA governor Philip Lowe said on Tuesday the bank’s board was committed to returning inflation to its target of 2 to 3 per cent.

“Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead,” Mr Lowe said in a statement published after the RBA’s cash rate decision.

“As is the case in most countries, inflation in Australia is too high.”

However, Mr Lowe said the RBA board decided to increase the cash rate by 25 basis points after “reflecting” on the fact it had increased the cash rate “substantially in a short period of time”.

More to come.