Australia’s central bank yesterday announced a surprise rate hike, sending interest to an 11-year high on Tuesday, dashing hopes that it would hold steady as inflation shows signs of slowing.
The Reserve Bank of Australia lifted the key interest rate by 25 basis points to 3.85 percent, wrong-footing many economists who predicted that there would be no change.
Figures released in late last month showed the consumer price index dropping to 7 percent, down from 7.8 percent in December last year, but still stubbornly above the bank’s target of 2 to 3 percent.
Photo: Bloomberg
Central bank Governor Philip Lowe said inflation had “passed its peak,” but was still too high.
“Given the importance of returning inflation to target within a reasonable time frame, the board judged that a further increase in interest rates was warranted today,” Lowe said.
He said that it could take a “couple of years” before inflation returns to an acceptable level, and flagged further rate hikes could be on the horizon.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” he said.
The central bank held interest rates steady at its last meeting last month, ending a series of 10 successive hikes in a row.
Lowe said that this had enabled the bank to take stock of the economy, before deciding on the latest rise.
Australians are now forking out an extra A$250 (US$167.54) every week to meet the repayments on an average mortgage of about A$600,000.
Like other countries fighting inflation, Australia faces a delicate balancing act to bring prices down without stifling economic growth and sparking a recession.
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