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Scott Morrison says the rise in interest rates will make it harder for some Australians, but it is the next step in the economic recovery from the COVID-19 pandemic.
The Reserve Bank at its board meeting on Tuesday lifted the cash rate for the first time in almost 12 years, taking it from 0.1 to 0.35 per cent.
RBA governor Philip Lowe said in the post-meeting statement there was evidence of wages growth picking up and the economy was proving to be resilient, with inflation rising more quickly than expected.
He said the outlook for economic growth was positive although there were "ongoing uncertainties about the global economy".
However he warned of a further lift in interest rates over the period ahead to ensure inflation returns to the bank's target range of two to three per cent.
In 2007 when rates rose during the election, then-prime minister John Howard sympathised with those impacted.
"I don't like it and I would say to the borrowers of Australia who are affected by this change that I am sorry about that and I regret the additional burden that will be put upon them as a result," Mr Howard said.
At that time interest rates hit an 11-year high of 6.75 per cent and it was the sixth rate rise since the previous election.
Mr Morrison, who faces an election on May 21, said he understood the rise would have an impact on some households, but the economy was strengthening.
"Of course I have sympathy with that (rate rise impact) ... and we expressed our concern about that in what we did in this year's budget," he told reporters in Melbourne.
He added: "A 25 basis point increase in the cash rate, for those who will be paying more that will be harder and we understand that."
"That is why tax reduction has been a key objective of our government and is ongoing, that is why supporting businesses who themselves face higher rates now have been supported."
He said Australians would want to see the end of emergency level monetary policy support, as the next step on the journey out of the pandemic.
Australians had been preparing for the rise "for some time" by doubling the buffers in their mortgages and moving to fixed rates.
"That was not something Australians reasonably thought would go on forever," he said.
Labor leader Anthony Albanese said it was hard enough already to make ends meet under Mr Morrison.
"Today it got even harder for millions of Australians," he said.
"Even before today's decision Australians were facing a full-blown costs of living crisis on his watch. Scott Morrison's economic credibility was already in tatters, now it's completely shredded."
He said while the RBA was an independent body and made its own decisions on monetary policy free from political interference, governments had a role to play in easing cost of living pressures and in creating secure jobs which put upward pressure on wages.
Shadow treasurer Jim Chalmers said the coalition was focused on politics, despite Mr Morrison saying it had nothing to do with political interests.
"They see this exclusively as a political challenge," he said.
"Scott Morrison saying he's not focused on the politics is like Homer Simpson saying he is not focused on the donuts."
ACTU secretary Sally McManus said house prices had risen six times faster than wages under the Morrison government.
"If Scott Morrison hadn't been completely missing in action on wages, Australian workers paying off a mortgage would have been better prepared for today's interest rate rise," she said.
Assistant Treasurer Michael Sukkar said there was an expectation that property prices would moderate, following rises during the COVID-19 pandemic.
"A moderation in house price growth is something I have been talking about for months now," he told Sky News.