Latest NewsRba Lifts Official Cash RateTuesday, 06 December 2016

The Reserve Bank of Australia (RBA) has lifted the official cash rate by 25 basis points to four per cent.

It marks the first increase in the cash rate since December, when the central bank lifted rates by 0.25 per cent for a third consecutive month.

"The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," RBA governor Glenn Stevens said in a statement following the central bank's meeting.

"Today’s decision is a further step in that process."

The Australian dollar popped higher after the decision but quickly ran into selling. Bill futures slid as the market had only partially priced in a hike having been burned back in February when the RBA surprised everyone by skipping a move.

Economists say case for rate rise 'compelling'

Mr Stevens said economic conditions in Australia last calendar year were stronger than expected, with labour market data and business surveys suggesting growth may have been at or close to trend for a few months.

Housing credit had expanded and dwelling prices risen significantly over the past year, he added, although new loan approvals had moderated.

"There was a compelling case to raise rates given the strength of the domestic data. The labour market and investments in resources are going quite strong," RBC Capital Markets senior economist Su-Lin Ong said.

"Still, they expect inflation to be on target, so I think they have moved the cash rate closer to a level where they are comfortable now.

"The tightening bias is still intact, though the timing of future rate hikes is debatable. I think they are likely to stay on the sidelines until June, after they have the latest inflation numbers and the budget in May."

Nomura economist Stephen Roberts said the RBA's commentary about the local economy had been "fairly upbeat".

"So they appear to have made a decision on the basis they don't want interest rates to be too much lower than average for most borrowers. It comes down to how they are going to move interest rates towards average," Mr Roberts said.

"The final paragraph does not appear suggesting much of a pause beyond this move, so they may move a little quicker than previously thinking."

At its meeting in February, the RBA unexpectedly left the cash rate on hold at 3.75 per cent.

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