The Reserve Bank of Australia yesterday lifted its benchmark interest rate for a second time in five weeks, changing the cash rate to 0.85 percent from 0.35 percent.
When Australia’s central bank lifted the rate by 0.25 percentage points at its monthly board meeting on May 3, it was the first rate hike in more than 11 years.
A rise was widely expected after official data released in April showed that Australia’s inflation rose to 5.1 percent in the year through March. It is the highest annual rate since 2001, when a newly introduced 10 percent federal consumption tax created a temporary spike.
Australian Treasurer Jim Chalmers yesterday foreshadowed more rate hikes, saying inflation in Australia would worsen.
“It’s clear already that inflation will be significantly higher than the 5.1 percent it is currently,” Chalmers told the Australian Broadcasting Corp hours before the bank’s rate decision was announced.
“Inflation will get worse before it gets better. That’s the trajectory that we’ve inherited,” he said.
A May 21 election put Chalmers’ Labor Party in power. It has criticized the level of debt accrued by the previous administration.
Chalmers said he would update the nation on inflation when parliament resumes on July 26 for the first time since the election.
Reserve Bank of Australia Governor Philip Lowe said that inflation was not expected to fall below 3 percent until next year.
The bank adjusts interest rates to keep inflation within a 2 to 3 percent target band.
“Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected,” Lowe said.
“Global factors, including COVID-[19]-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation, but domestic factors are playing a role too, with capacity constraints in some sectors and the tight labor market contributing to the upward pressure on prices,” he said.
Inflation in the latest quarter was sharply higher than the 3.5 percent in the quarter before, driven by a surge in fuel and housing costs, and damage to crops from floods.
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