Australia's central bank has lifted interest rates to combat surging inflation which is being fuelled by supply shortages and higher commodity prices including energy and fuel.
The Reserve Bank of Australia on Tuesday enacted a 50 basis point hike, bringing the official cash rate to 1.35 per cent.
RBA Governor Philip Lowe said the board decided a double hike was necessary given the inflationary pressures within the economy, which are touted to run at annual rate of 7 per cent by the end of the year.
Dr Lowe said monetary policy is responding the higher levels of inflation but warned it would take some time levels were stabilised.
"Today's increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic," Dr Lowe said.
"The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.
"The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.
"The size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market."
It is the third consecutive month where the RBA has raised interest rates which were brought to historic lows of 0.1 per cent during the pandemic.
Treasurer Jim Chalmers warned there was no shortage of challenges for Australians as the combined pressure of natural disasters, global uncertainty, inflation and now rising interest rates eat into household budgets.
"We do appreciate that the skyrocketing costs of essentials like groceries and petrol and electricity and other essentials as well. It's putting extreme pressure on financial and household budgets and this interest rate rise [on Tuesday] will add to the pain that people are feeling," Mr Chalmers told reporters in Canberra.
He claimed people with a $500,000 mortgage would have to find an additional $137 per month.
"The government changed hands at a time of high and rising inflation, rising interest rates, falling real wages, [and] natural disasters to contend with as well," Mr Chalmers said.
"Our ability to respond to a lot of these challenges is constrained by the fact that there is a trillion dollars of debt in the budget and we need to take that challenge seriously."
Initial predictions by the RBA had pointed to the first rate rise not occurring until 2024, however soaring inflation expedited the central bank's decision to tighten monetary policy earlier.
The bank is expected to possibly lift rates again in August, with market consensus pointing to a 3.25 per cent cash rate by the end of the year.
