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Lowe is asked about assurances he gave that rates were unlikely to go up until 2024, which encouraged people to borrow for mortgages. He says:

We changed the guidance and we have changed it because the economic circumstances have changed. Nobody predicted we would be looking at the lowest unemployment rate for decades now.

You might recall that during the dark days of the pandemic… people talked about an unemployment rate in Australia of 15%. There would be deep scarring that would take many years to overcome.

That was the situation people were thinking through 2020, fortunately things have worked out better than that which means we don’t need these very low level interest rates, that we thought we were needing, and I know it comes as a shock to people but it is a testimony to the resilience of the economy and the fact more Australians have jobs today than ever before.

People knew rate rises were coming, he says.

As you’d expect there’s a bit of reaction to the RBA’s rate rise.

David Plank, ANZ’s head of Australian economics, notes the 25 basis point increase “ended up surprising everyone”.

“The move is at the hawkish end of the spectrum,” Plank said. “This reflects the RBA’s elevated inflation forecasts.”

(The alternative is dovish, which would have been leaving rates unchanged.)

The RBA’s predictions include the headline inflation reaching 6% by the end of 2022, with core or underlying inflation at 4.75%. In March, the latter came in at 3.7%.

Just five weeks ago or so, the federal budget was tipping CPI to end this fiscal year with a 4 on it, and fall in coming years. That looks a little unlikely at this point.

Another increase at next month’s board meeting of 40 basis points to 0.75% “seems a distinct possibility”, Plank said.

Meanwhile, it’s interesting Scott Morrison is saying the higher inflation rates in the US and New Zealand (above 8% and 7%) “could have happened here”.

That’s mischievous, to say the least. Every economist following these things knows that Australia’s inflation rise was delayed compared with most other countries because the Omicron lockdowns came later and lingered longer than most places elsewhere.

Actually, today’s rate rise and those still to come are intended to learn from the mistakes of other central banks, including US Federal Reserve. The aim is make sure the spike here is blunted, and it remains to be seen whether Lowe was in fact too slow to go.

Asked if the Reserve Bank is “playing catch up” and should have moved sooner, Lowe says they waited for the evidence. “As soon as we’d seen the evidence, we moved,” he says.

“It’s not unreasonable to expect that… interest rates could rise to 2.5%,” Lowe says:

How quickly we get there and if we do get there will be determined by how events unfold. We have an open mind, over the past two years we have been very flexible, it changed in response to changing circumstances and we will continue to do that… a more normal level. How fast we will get there will be determined by events.

And he says no one from the government called him about today’s announcement.

The election had “no influence” on today’s decision, Lowe says. “We have operational independence.” He says:

We have operational independence and it’s testimony to the political culture of Australia that the independence is respected, we take our decisions in the best interest of the country – that is what we always do ,and what we did today, and we did that without any interference from politics. We don’t take the political situation into account, we do what we think is right for the country.

Further “normalisation” of interest rates will be required, Lowe says, and the RBA will not at this point sell government bonds it acquired during the pandemic, and also will not rule out a return to quantitive easing. He says:

We will also continue to be flexible and responsive to changing circumstances. We will do what is necessary to ensure inflation outcomes are consistent with the medium term inflation targets.

Lowe says there is a “strong link” between the inflation rate and the rate of growth in labour costs.

Inflation should return to a lower rate once labour supply washes through, he says. But if not… not. He says:

The evidence that we have received on inflation … has been clear. Inflation has been high, and it’s been higher than what was expected. On labour costs, while the various data for the March quarter compiled by the ABS has not yet been released, other evidence received over the past month through our business and through business surveys has indicated there is now strong upward pressure on labour costs and this is likely to continue.

We expect to see this in the ABS data over the period ahead. In a tight labour market, some firms are paying higher wages to attract and retain staff, this is especially so given the higher inflation rate.

The higher inflation numbers do have a domestic component, Lowe says, even if they are not as high as they are overseas.

But they are higher than we have experienced for many years and they are higher than we were expecting, Lowe says:

There are a number of areas with strong demand now putting pressure on available capacity, with many firms reporting it’s quite difficult to hire workers with the right skills.

This pressure on capacity is reflected in the broadening of the areas which prices are rising more quickly than they have over recent years. Firms in a range of industries are now indicating they are prepared to pass on cost increases through into higher consumer prices. Looking forward, we expect a further increase in the inflation rate as the effects of global developments wash through the year-end inflation figures.

Lowe says:

I acknowledge that the increase in interest rates comes earlier than the guidance that the bank was providing during the dark days of the pandemic.

During that period … the national health situation was precarious, the economic outlook was dire and it was clouded by a lot of uncertainty. The board wanted to do everything it could, in those circumstances to help get the country through that difficult period.

In those unprecedented times, we charged that the economic damage from the pandemic was likely to require interest rates remain low in Australia for years. As things have turned out, the economy has been much more resilient than we had expected, which is clearly very welcome news.

The combination of fiscal and monetary support has worked. And the development of vaccines in record time has allowed our society to return to more normal functioning more quickly than we had expected. Australians have also proven to be resilient and we have adapted well to the changed circumstances.

Reserve bank governor Philip Lowe is up now (the treasurer and PM weren’t quite finished, so we’ll have to come back to them). Lowe says:

The economy has been very resilient.

Unemployment is low, and economic growth is expected to be strong this year … Inflation has picked up more quickly and to a higher level than we had expected.

The board judged that it was now appropriate to start the process of normalising monetary policy.

Q: What’s in the “shield” for people on fixed rates who’ll face a hike?

Jobs and lower taxes, Morrison says. And a strong economy to maintain “essential services”, like pharmaceuticals and Medicare.

He says these are things you can’t guarantee without a strong economy (I hope he doesn’t mean that if there are more economic shocks, essential services will be threatened).

Q: Does your cost of living help pour fuel on inflation?

No, Morrison says. Frydenberg picks it up, and says treasury confirmed (before the inflation hike) that it wouldn’t.

Q: Hasn’t your shield started shattering right before your eyes?

Morrison says he sympathises with Australians on cost of living pressures and increased mortgage repayments. And, again, he compares Australia to other advanced economies. That’s the economic shield, he says.

We’ve steered this country through one of our most difficult times. The stresses and the pressures are intense.

Q: Do you have sympathy with mortgage holders?

Scott Morrison says “of course” he has sympathy. And that he expressed that concern through lower taxes, cutting the petrol excise, etc. The RBA statement does not mention any government policies that led to this decision, he says. But it does refer to the strength of the economy.

And it’s a judgment of the resilience and strength of household balances sheets, he says.

Q: Is the budget already out of date? And if people can’t trust the budget or the RBA, how do they trust your government or any government?

The budget is made up of many assumptions, Morrison says:

There are many swings and roundabouts in what goes into the budget.

Frydenberg says today’s RBA decision is independent and that global factors are driving up inflation, as are disrupted supply chains and the war in Ukraine, and the increase in fuel prices. “It would be completely unreasonable for any objective analysis to think that emergency level cash flows and monetary policy could satay in place,” he says.

This is a reflection of an “economy coming back to life”, he says.

He’s asked whether the RBA should perhaps not have said interest rates would stay low until 2024. Frydenberg declines to speak specifically on that.

The first question is: “Has your government just lost this election?” (!)

“Of course not,” Morrison says. He points to “evidence of wages rising”, and the inflation outlook, which he says is “caused by the events, particularly in Europe, but also the hangover effects cause by the pandemic”.

And we’re back to the employment rate.

The treasurer, Josh Frydenberg, says fiscal policy is “normalising” and the RBA’s decision is a “walk along the path” to normalcy.

He points to other advanced economies that have seen their cash rates lifted.

Just as the Morrison government has had the back of every Australian during this process, we continue to have their back.

And (while Morrison said earlier this wasn’t about the politics), it is about the choice at the 21 May election, and he points to Labor leader Anthony Albanese’s gaffe on the unemployment rate – was that three weeks ago? Gosh.