Reserve Bank governor Philip Low said today’s increase in interest rates is another step towards normalising monetary conditions in Australia, as the bank works to bring inflation back down to its target range of 2-3 per cent.

“The board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path,” Lowe said.

Future interest rate decisions will be guided by incoming data, he said, including new inflation and employment figures.

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Inflation is expected to peak later this year at 7.75 per cent before falling to just over 4 per cent through 2023 and about 3 per cent through 2024.

“There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy. The floods this year are also affecting some prices,” Lowe said.

Economic growth is currently strong but is expected to slow. The RBA forecasts GDP growth to be 3.25 per cent this year, and 1.75 per cent in 2023 and 2024.

The jobs market also remains tight, Lowe said, with signs wages are growing.

Unemployment is at 3.5 per cent and is expected to fall further this year, before rising to about 4 per cent by the end of 2024.

The RBA said household spending will continue to be a key source of uncertainty, amid low consumer confidence, declining house prices and higher inflation but also an increase in the number of people finding jobs and increasing their work hours and savings.

“The board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy,” Lowe said.