The Reserve Bank of Australia (RBA) yesterday boosted its benchmark interest rate for a fourth consecutive month to a six-year high of 1.85 percent.
The Australian central bank’s decision was the cash rate’s third consecutive hike of half a percentage point.
When the bank lifted the rate by a quarter percentage point at its monthly board meeting in May, it was the first rate hike in more than 11 years.
Photo: AFP
The cash rate is now at its highest point since May 2016, when the bank cut the rate to 1.75 percent from 2 percent.
RBA Governor Philip Lowe said his board “places a high priority on the return of inflation” to a target range of 2 to 3 percent “over time, while keeping the economy on an even keel.”
“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,” Lowe said in a statement.
Yesterday’s hike was widely anticipated after official data released last week showed inflation in the year through June was 6.1 percent, up from 5.1 percent in the year through March.
Inflation only increased by 3.5 percent during the last calendar year.
Treasurer of Australia Jim Chalmers said the latest rate rise would create more financial hardship for families who are already contending with higher grocery and power prices.
“This decision doesn’t come as a surprise. It’s not a shock to anybody, but it will still sting,” Chalmers told Parliament.
Lowe is under mounting criticism over his forecast in November last year that the cash rate would remain at a record low 0.1 percent until 2024, despite COVID-19 pandemic-induced inflation.
Warren Hogan, a former economic adviser to a previous Australian government and chief economist at Australia and New Zealand Banking Group Ltd and Credit Suisse Group AG, said Lowe had misled borrowers into taking on more debt than they should have.
Overextended first-home buyers were “staring down the barrel of the most significant tightening of monetary policy in the modern era,” Hogan told Australian Broadcasting Corp.
“I can’t see how much bigger an error a central bank and its board can make and it’s all about the credibility of the institution,” Hogan said, referring to the forecast of continuing low interest rates.
The government last month announced a wide-ranging review of the bank and monetary policy.
Australian home prices were falling at the fastest pace since the global financial crisis in 2008 and market conditions were “likely to worsen” as interest rates continue to rise, adding to costs for home buyers, property analytics firm CoreLogic Inc reported on Monday.
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