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Mortgage rates are set to rise, after the Reserve Bank of Australia increased the cash rate from 3.60% to 3.85%.
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The RBA made 10 consecutive cash rate increases to March but then left rates on hold in April, leading many commentators to forecast the RBA would also hold fire in May. However, in a statement announcing the result, RBA governor Philip Lowe said another rate hike was needed to put downward pressure on inflation.
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"The board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook," he said.
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"Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range [of 2-3%]. Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted [in May]."
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Governor Lowe said at least one more cash rate increase "may be requiredโ at some point in the future, but that would depend on how the economy evolves.
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