The Reserve Bank has raised interest rates by 25 basis points to 4.75 per cent. The move is set to affect retailers and importers as well as the Australian dollar.
The move comes as a surprise to the market, which was expecting interest rates to stay steady after recent inflation results. It is the first increase by the bank since May.
According to Reserve Bank governor, Glenn Stevens, the decision comes as global economies improve. But he also said the drop in Government spending was causing a fall in demand.
“The rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment,” he said in a statement.
Stevens also claimed the job market would get tighter over the next year and that inflation would start to rise at a faster pace.
“After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year,” he said.
The rise is expected to help the Australian dollar increase in value against the US dollar, which will make importing tech goods cheaper for businesses. But it is also likely to hurt retailers as consumers buckle down on spending.