Australian central bank decides first interest rate hike in 11 years
Jasleen Kaur
May 3rd 2022 01:59 PM
Sydney, May 3: Australia’s central bank on Tuesday lifted its benchmark interest rate for the first time in more than 11 years. The cash rate rose from 0.1% to 0.35% in a move potentially damaging to a government that will seek re-election on May 21.
After dropping interest rates down to historic low levels during the pandemic, the Reserve Bank of Australia (RBA) has hiked interest rates by 0.25 to 0.35 per cent, the first rise since 2010, in an effort to calm growing inflation.
Also Read | BSF troops seize heroin worth crores in Punjab's Abohar, Amritsar
RBA Governor Philip Lowe said it was now "the right time" to withdraw accommodative monetary support designed to help the Australian economy through the pandemic. "The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level than was expected," said Lowe.
Figures released by the Australian Bureau of Statistics (ABS) last week showed inflation had reached a two-decade high of 5.1 per cent in the last 12 months. This has prompted widespread calls for the central bank to step in to deal with inflation that has begun to stretch the budgets of Australians.
Lowe said while the Reserve Bank expected further rises in inflation in the short-term as supply-side demand is resolved, inflation is expected to return to the RBA's target of 2 to 3 per cent.
The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4.75 per cent, by mid-2024," he said.
Professor Peter Swan from the University of New South Wales's (UNSW) Business School told Xinhua on Tuesday that the move defied expectations of a 0.10 increase. "You'd think it would take them 10 months to go up one per cent... it's setting now the expectation that interest rates will move up very rapidly, and much faster than anyone expected."
Also Read | India logs 2,568 new Covid-19 infections; active caseload 19,137
He added that at this rate it would mean interest rates would increase by 1 per cent every four months, which for a typical Sydney mortgage holder would add about 450 Australian dollars (about 320 US dollars) to their mortgage payments, and 900 Australian dollars (about 640 US dollars) by the end of the year.
"That's going to be politically painful because one and a half million homeowners have never encountered interest rate rises before."
Swan said Australia's inflationary troubles would not be a quick fix, and interest rates would likely need to reach 2 to 3 per cent before they start having an effect.
Notably, it is the first time that the central bank, whose independence of government was enshrined in legislation in 1996, has shifted interest rates during a federal election campaign since 2007.
-PTC News
A rise was widely expected after official data released last week showed that Australia's inflation rose to 5.1% in the year through March. It is the highest annual rate since 2001, when a newly introduced 10% federal consumption tax created a temporary spike.
Inflation in the latest March quarter was sharply higher than the 3.5% three months earlier.
The March result was driven by a surge in fuel and housing costs as well as food shortages created by recent Australian floods.
After dropping interest rates down to historic low levels during the pandemic, the Reserve Bank of Australia (RBA) has hiked interest rates by 0.25 to 0.35 per cent, the first rise since 2010, in an effort to calm growing inflation.Lowe said while the Reserve Bank expected further rises in inflation in the short-term as supply-side demand is resolved, inflation is expected to return to the RBA's target of 2 to 3 per cent.
The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4.75 per cent, by mid-2024," he said.
Professor Peter Swan from the University of New South Wales's (UNSW) Business School told Xinhua on Tuesday that the move defied expectations of a 0.10 increase. "You'd think it would take them 10 months to go up one per cent... it's setting now the expectation that interest rates will move up very rapidly, and much faster than anyone expected."
Also Read | India logs 2,568 new Covid-19 infections; active caseload 19,137
He added that at this rate it would mean interest rates would increase by 1 per cent every four months, which for a typical Sydney mortgage holder would add about 450 Australian dollars (about 320 US dollars) to their mortgage payments, and 900 Australian dollars (about 640 US dollars) by the end of the year.
"That's going to be politically painful because one and a half million homeowners have never encountered interest rate rises before."
Swan said Australia's inflationary troubles would not be a quick fix, and interest rates would likely need to reach 2 to 3 per cent before they start having an effect.
Notably, it is the first time that the central bank, whose independence of government was enshrined in legislation in 1996, has shifted interest rates during a federal election campaign since 2007.
-PTC News