The RBA opted for another smaller 0.25 percentage point lift on Tuesday, despite speculation of a 0.5 percentage point rise in the wake of surprisingly high third-quarter inflation.

The latest hike monetary policy tightening cycle brings the official cash rate to 2.85 per cent.

“The board expects to increase interest rates further over the period ahead,” bank governor Dr Philip Lowe said.

“It is closely monitoring the global economy, household spending and wage and price-setting behaviour.”

Lowe said the central bank had already lifted interest rates “materially” since May, and that it would take time for higher interest rates and inflation to bite.

“The board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments,” he said.

The central bank has also added around 0.25 percentage points to its peak inflation forecast, and now expects it to reach eight per cent before the end of the year.

“Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand.”

The central bank expects inflation to simmer down to 4.75 per cent next year and a touch over three per cent in 2024.

The central bank has also revised its growth forecast down a little, and now expects growth of around three per cent this year and 1.5 per cent in 2023 and 2024.

The RBA has been hiking interest rates aggressively since May to temper inflation, which hit 7.3 per cent in the September quarter.

It hiked by 25bps in May, before four consecutive 50bps between June and September and another 25bp hike in October.

CreditorWatch chief economist Anneke Thompson said the latest rate rise will lock in a slowdown in consumer spending during the usually busy Christmas period.

“Today’s decision by the RBA to further raise the cash rate will place undeniable financial pressure on Australian households,”Thompson said.

Compared to pre-hikes, a 0.25 percentage point lift will push monthly repayments up by $760 for a mortgage holder $500,000 in debt with 25 years remaining on the loan, RateCity analysis shows.

Thompson said there were several signs of economic trouble in 2023.

“The RBA board will likely have carefully considered labour force data, which showed that the unemployment rate has stagnated at 3.5 per cent, employment growth has slowed dramatically, and job vacancies have stopped rising,” she said.

-with AAP