The Reserve Bank has lifted the official cash rate by 25 basis points, ending the historic low rate set during the pandemic.
It is the first lift in official interest rates since November 2010 and the first during a federal election campaign since 2007.
The bank’s move, announced on Tuesday afternoon, takes the official rate to 0.35 per cent.
Governor Philip Lowe said now was the right time to pull back the “extraordinary monetary support” given to the economy as inflation was picking up.
“There is also evidence that wages growth is picking up,” he said.
“Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”
The rate hike comes amid an increasing focus on mortgage costs, and the cost of living, ahead of the May 21 election.
Ahead of the RBA board decision, Prime Minister Scott Morrison sought to distance himself from the political implications of any rise.
The last mid-election rate hike was widely seen as a significant factor in John Howard’s failed re-election attempt.
“There is serious pressure on interest rates around the world,” Mr Morrison said.
“I mean in the last 12 months, the IMF has more than doubled their estimates forecast for this year on inflation to well over 7 per cent for this year from about the mid-threes. That’s what’s changed in the last 12 months.
“We know all the reasons why – war in Europe, supply chain disruptions and here, for fruit and veg, we will continue to see the impacts of recent floods.”
On Monday, Mr Morrison denied any move by the RBA would reflect his government’s management of the economy.
“It is not about me. It is not about Mr Albanese… it is about Australians themselves and the decisions they are making,” he said, while campaigning in Victoria.
“The pressures on interest rates, I think, highlight … just why the economy is so important this election.”
However, Labor has accused Mr Morrison of dodging responsibility for difficult economic issues.
Shadow treasurer Jim Chalmers said no Australian would be surprised at a lift in interest rates from emergency levels.
“I think what is concerning when it comes to the role of government is that the Prime Minister wants to pretend that he has absolutely nothing to do with it,” Dr Chalmers told the Seven Network on Tuesday.
“If something good happens in the economy, the Prime Minister takes credit. If something difficult happens in the economy, he takes none of the responsibility, and I think Australians are tired of that.”
Economists have said the federal government must share some of the blame for Tuesday’s rate hike as the federal budget included billions of dollars of measures that added to inflationary pressures.
In Gosford on the NSW central coast on Tuesday, Labor leader Anthony Albanese accused the government of having no plan to deal with economic challenges.
“A whole range of factors that impact on people’s cost of living, their ins and their outs, their income and their expenditure,” he said.
“This government is doing nothing to increase people’s income in terms of wages. They’re also doing nothing in terms of reducing the cost of living across a range of areas … So interest rates rise …
‘Under our watch, what we have is a plan to reduce cost of living for working families.”
Financial markets had priced in a 0.15 percentage point rise in the cash rate to 0.25 per cent on Tuesday, ahead of more expected increases of 0.25 percentage points in subsequent months.