The Reserve Bank’s decision to lift the cash rate by 25 basis points – less than market expectations – is appropriate as it considers the impact of a 2.5 per cent rate increase in the past six months.

“The RBA has made the right decision to tread more carefully,” ACCI chief executive Andrew McKellar said.

“With the RBA embarking on its most aggressive tightening cycle for many years, it must be mindful not to go too hard, too fast. As such, it’s appropriate that the central bank slows its rate of tightening to ensure there is time to judge what the feedback effects are on the economy.

“A continuation of aggressive rate rises risks escalating the prospect of recession, inflicting further pain on households and businesses.

“Despite surging inflation and aggressive rate tightening, national accounts data released last month showed robust economic growth. Strong consumer demand, ultra-low unemployment, and record terms of trade mean that Australia’s economic outlook remains remarkably positive.

“Of course, even when the Reserve Bank does get inflation under control, tougher economic times likely lie ahead. Deteriorating conditions, particularly in the European Union, United Kingdom and the United States, signal that weak growth is likely a best-case scenario for the global economy.

“At a time of heightened economic risk, it’s essential that monetary and fiscal policy push in the same direction.

“Overwhelmingly, the focus of the federal government’s policies needs to be building supply-side capability and addressing capacity constraints in order to strengthen our defences against further inflationary pressure.