Australian central bank raises rate to 6-year high of 1.85%

Canberra, Australia (AP) – Australia’s central bank on Tuesday raised its benchmark interest rate for the fourth straight month to a six-year high of 1.85%.

The Reserve Bank of Australia’s decision was to increase the cash rate by half a percentage point for the third time in a row.

When the bank raised 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.

The cash rate is now at its highest point since May 2016 when the bank reduced the rate from 2% to 1.75%.

Reserve Bank Governor Philip Lowe said his board places “high priority on the return of inflation” to a target range of 2% to 3% over time, while keeping the economy at a similar pace.

“The road to achieving this balance is narrow and clouded by uncertainty, not least because of global growth,” Lowe said in a statement.

Tuesday’s hike was widely projected after official data released last week showed inflation was 6.1% in the year through June, up from 5.1% in the year through March.

Inflation rose only 3.5% during the last calendar year.

Treasurer Jim Chalmers said the latest rate hike would create more financial hardship for families who are already grappling with high grocery and electricity prices.

“This decision does not come as a surprise. It is not a shock to anyone, but it will still sting,” Chalmers told parliament.

Lowe’s is facing criticism over his forecast in November last year that the cash rate would remain at a record low of 0.1% through 2024, despite pandemic-induced inflation.

Warren Hogan, a former economic adviser to the previous Australian government and chief economist of both ANZ and Credit Suisse banks, said Lowe’s had misled borrowers into borrowing more than they should have.

Hogan told Australian Broadcasting Corp. “More expanded first-home buyers” were staring at the barrel of the most significant tightening of monetary policy in the modern era.

“I can’t see how big a mistake a central bank and its board can make is about the credibility of the institution,” Hogan said, referring to forecasts of continuing low interest rates.

The government last month announced a comprehensive review of 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 continued to rise, increasing costs for home buyers, said property analysis firm CoreLogic. reported on Monday.

Economists at the Commonwealth Bank of Australia forecast that national domestic prices could fall by 6% by the end of the year, with a further 8% possible in 2023.

Leave a Comment

%d bloggers like this: