As it happened: RBA lifts interest rate to 0.85 per cent; UK prime minister survives no-confidence motion

In the past three decades, the Reserve Bank has only increased interest rates by more than half a percentage point on five occasions.

Three were in 1994 when then-governor Bernie Fraser took the cash rate from 4.5 per cent to 7.50 per cent between August and December. Then in 2000 when Ian Macfarlane added half a percentage point during the frothiest part of the dot.com boom and a surge in Australian housing prices.

Now Philip Lowe has joined the exclusive club, taking the cash rate to 0.85 per cent with a half percentage point hit.

There were two key points in Lowe’s statement announcing the move. They go to risks facing the bank, the economy and the new Albanese government.

Read more here from senior economics correspondent Shane Wright

China's Defence Ministry on Tuesday said it warned an Australian surveillance plane to leave as it approached the Paracel Islands in the South China Sea in May.

The Chinese fighter jet released flares and chaff when it intercepted the RAAF P-8 aircraft on May 26, prompting the Australian government to accuse China of threatening the safety of the Australian crew.

Defence Ministry spokesman Tan Kefei said the Australian aircraft threatened China's sovereignty and security.

"The countermeasures taken by the Chinese military were reasonable and lawful," he said, arguing the crew had responded "professionally and safely" to the incident.

Almost $18 billion evaporated from the ASX 200 within minutes of the RBA shocking the markets with a 0.5 per cent rate rise.

Shortly after the RBA’s rate decision the benchmark index slumped 1.7 per cent to 7086.4 points. It was 0.9 per cent weaker just minutes before the decision and closed out the session 1.5 per cent lower at 7,086.4 points with all sectors closing in the red.

It was a clear “No More Mr Nice Guy” message from RBA Governor Philip Lowe who has finally declared war on inflation. And there was no doubting who the ASX losers are expected to be.

The Big Four banks were already sinking before the outsized rise hit the markets with consumer spending expected to take a hit and mortgage stress will rise from artificially low levels.

Read more here.

New Zealand Prime Minister Jacinda Ardern is travelling to Australia this week and will become the first head of government to meet with new PM Anthony Albanese on Australian soil.

The leaders will meet informally in Sydney on Thursday night and hold bilateral talks on Friday.

"The relationship between New Zealand and Australia is like family," Ardern said. "I am very much looking forward to meeting Prime Minister Albanese in person following our recent phone conversations.

"I know it will be the first of many as New Zealand and Australia continue to co-operate closely in a world of increasing challenges."

The meeting brings the leaders together with centre-left governments in power on both sides of the Tasman Sea for just the second year in the past 32.

Showing the warmth of the relationship, Albanese called Ardern from his car on the way to give his election-night victory speech.

The two nations' relationship soured in 2020 when Ardern, on her last visit to Sydney, confronted Morrison over Australia's policy of deporting Kiwis who do not have family or community ties in NZ.

"Do not deport your people and your problems," Ardern memorably told Morrison, in an arresting moment of forcefulness from a New Zealand leader.

That issue remains a major bugbear in New Zealand, where authorities believe untethered deportees contribute to gang-related crime. New Zealand is hopeful of a breakthrough, or at least a softening.

"Obviously that issue is one that we are looking forward to conversations on," NZ Deputy Prime Minister Grant Robertson said. "We don't think the policy is fair or just and we are going to be seeking for the new government to make changes.

AAP

Shadow treasurer Angus Taylor just held a (very short) press conference where he empathised with mortgage holders after the RBA's decision to raise interest rates.

After making a few comments about the importance of containing government spending, Taylor said he was "happy to take questions" ... except there weren't any. SBS reported that no journalists attended the press conference.

There was an awkward pause while Taylor, eyes darting around the room, waited for someone to ask something.

After a few seconds, he said "Perfect" and departed the room. The whole thing was over in less than two minutes.

Shadow treasurer Angus Taylor will address the media at 3.30pm AEST after the RBA lifted official interest rates to 0.85 per cent. Watch below:

Albanese is asked about where Indonesia figures in his government’s plans for trade diversification, given a previous focus on India. He says both countries “stand out as representing enormous opportunity” for Australia.

“For a long period of time, Australia looked at our place in the world as an island continent located where we are and spoke about the tyranny of distance from Europe and North America, the big growth centres,” he says.

“We are now in a situation with the ubiquitous nature of technology, that growth will be determined by population because of the changing nature of the way that economies are functioning with globalisation.

“What that means is that we are in the fastest growing region in the world in human history and it’s going to get faster. That represents an incredible opportunity for an advanced economy like Australia.”

On China, he says the trade sanctions it has imposed over recent years “are unjust and should be removed”.
He said his visit to Makassar was a signal his government was taking the relationship seriously, as was the business community.

“I think for a lot of Indonesians, they know that Australia knows about Jakarta and knows about Bali. What they want is an Australian government that understands this vast archipelago and this vast nation.”

The prime minister says that from his perspective, the visit to Indonesia “has exceeded all expectations”. This afternoon he is meeting the governor of Makassar and visiting the world’s largest flour mill, which uses Australian wheat.

Treasurer Jim Chalmers says today’s interest rate rise will impact the government’s ability to reduce the budget’s $1 trillion debt, saying the challenge of inflation “will get harder before it gets easier”.

“This will be very difficult news for all of those Australians who are already facing skyrocketing costs of living in this country,” Chalmers told a press conference after the Reserve Bank’s decision to lift the cash rate to 0.85 per cent.

“And in addition to the pressure it will put on family budgets, it will also make it more expensive for the Commonwealth government to service that trillion dollars of debt in the budget.”

He described the budget as “heaving with Liberal debt”, saying it was within reach to strengthen the economy, “but first we need to navigate together this high and rising inflation and the interest rate rises that accompany it”.

“We need to be honest and upfront with the Australian people about the nature, the severity, the magnitude of this inflation challenge that we confront,” Chalmers said.

The Treasurer has flagged cost-of-living relief in the government’s October budget, including reducing the cost of childcare and medicines, as well as trying to push down energy prices.

“The best thing that we can do as a government is to make sure that we grow the economy without adding these inflationary pressures, that we get real wages moving again and that we actually have something to show for this trillion dollars in debt that our predecessors have racked up,” he said.