Australia’s central bank yesterday lifted its benchmark interest rate for a third time in three straight months, changing the cash rate to 1.35 percent from 0.85 percent.
The Reserve Bank of Australia’s (RBA) half a percentage point rise was the same size as its increase last month.
When the bank lifted the rate by a quarter percentage point at its monthly board meeting in May, it was its first rate hike in more than 11 years.
Photo: AFP
RBA Governor Philip Lowe yesterday said that inflation in Australia was high, although not as high as it is in many other countries.
“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,” Lowe said in a statement.
“Strong demand, a tight labor market and capacity constraints in some sectors are contributing to the upward pressure on prices,” he said, adding that recent floods were affecting some prices.
The board expects to take further steps “over the months ahead,” he said.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labor market,” Lowe added.
Australia’s annual inflation rate rose to 5.1 percent in the March quarter, the highest annual rate since 2001 and sharply higher than the annual 3.5 percent rate reported three months earlier. The rise was driven by a surge in fuel and housing costs and damage to crops from floods last year.
Flooding in Sydney and its surrounds since Saturday has further damaged crops in the region and will likely increase prices of some fruits and vegetables.
Inflation data for the June quarter will be released on July 27, raising prospects of another rate hike at the bank’s August board meeting less than a week later.
Lowe last month forecast that inflation would peak at 7 percent late this year.
Treasurer of Australia Jim Chalmers said neither the RBA nor the Treasury Department was forecasting that rising interest rates would push the Australian economy into recession.
“The way I look at it is our economy is growing, but so are our challenges,” Chalmers said.
He added that the latest rate hike was “very challenging news for hardworking Australians already doing it tough.”
Australia’s housing market has already responded to the previous rate rises. The Corelogic Home Value Index for last month showed house prices in Sydney, Australia’s most populous city, and Melbourne, its second-most populous, fell 2.8 percent and 1.8 percent respectively over the quarter.
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