RBA lifts interest rates to highest level in 15 years

The Reserve Bank has lifted interest rates to their highest level in 15 years.It has increased rates by 0.25 percentage points, which lifts the cash rate target to 4.6 per cent, up from 4.35 per cent.It will be a blow to home owners with large mortgages. It is also the highest cash rate millions of households have faced since taking on a mortgage after 2011.But individuals who have high-interest savings accounts will see their savings accruing more interest after today’s decision, if their bank applies higher rates to their accounts. The desire to get inflation downIn recent weeks, senior RBA officials have been warning that they are losing patience with the time it is taking to drag inflation back down into the RBA’s 2-3 per cent target range.Why rates are headed higher for longerAgainst the backdrop of war in Iran, a trade war with Canada and bond sell-offs, trust in the US dollar appears to be weakening, and it will likely have an impact when the RBA announces its rate decision today.In July, headline inflation was running at an annual pace of 3.5 per cent and underlying (or “core”) inflation was running at 3.6 per cent.The RBA wants inflation sitting around 2.5 per cent on average, over the medium term.But Australia is not alone in its struggle to get inflation down. In recent weeks, the European Central Bank, US Federal Reserve, Bank of Japan and Reserve Bank of New Zealand have all lifted rates.The latest fighting in the Middle East has also sent crude oil prices higher in recent weeks, which has pushed more inflation around the world via higher fuel prices.The RBA’s decision to lift interest rates today comes one day before the Bureau of Statistics releases its September quarter inflation data.Loading