RBA lifts cash rate to 4.75%

The Reserve Bank (RBA) has surprised many economists by choosing to lift the official cash rate by 25 basis points to 4.75 per cent today (November 2nd).

In a statement, RBA governor Glenn Stevens said that despite recent inflation data coming in lower than expected, "the prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s" – a reference in part to high commodity prices.

"The economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity," he said.

"Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains."

Mr Stevens added that the RBA board had concluded that the balance of risks had shifted to the point where "an early, modest tightening of monetary policy was prudent".

While the RBA defended its decision in such pre-emptive terms, a number of housing industry experts have claimed that the interest rate hike will put many homeowners under major financial pressure in the run-up to Christmas.

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