RBA Governor Michelle Bullock said the decision to hike rates by 25 basis points was made to curb inflation which is “weighing on people’s real incomes”.

The last interest rate rise was in June – at the time the 12th since May 2022 – as the Reserve Bank attempted to rein in inflation amid disappointing wage growth.

In October the RBA left interest rates unchanged – the fourth consecutive month of no movement from July.

The raise to 4.35 per cent means about $79 will be added to monthly mortgage repayments on a typical $500,000, 25-year home loan according to RateCity figures.

In today’s statement, Bullock said household consumption growth was weak, as was dwelling investment.

“Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4.25 per cent,” she said.

“This is a more moderate increase than previously forecast. Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.”

The governor said returning inflation to target within a “reasonable timeframe” remained the board’s priority.

“High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” Bullock said.

“If high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

“There are still significant uncertainties around the outlook. Services price inflation has been surprisingly persistent overseas and the same could occur in Australia. There are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time when the labour market remains tight.”

The RBA’s outlook on household consumption “also remains uncertain”, and globally there remains a “high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts abroad”.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

The hike is expected to be a fresh squeeze for mortgage holders before Christmas, with more than $1100 having already been added to monthly repayments on a typical mortgage since May 2022 (when the Reserve Bank began increasing rates from pandemic-era lows).

CoreLogic Research Director Tim Lawless said the RBA decision to lift the cash rate is likely to disrupt confidence and take some further heat out of the housing market rebound.

“The lift in rates combined with ongoing cost of living pressures and alarming geopolitical environment is likely to weigh on consumer sentiment, which is already in deeply pessimistic territory,” he said.

“Lower confidence could act as a drag on housing market activity, denting buyer demand at a time when advertised stock levels are rising across most regions.

A rebalancing between buyer demand and advertised stock levels is likely to take some heat out of the housing upswing, which has already been losing some momentum, at least at a macro level, since the monthly rate of value growth peaked in May.”