CANBERRA, AUSTRALIA (AP) – Australia’s central bank boosted its benchmark interest rate yesterday for a seventh consecutive month to a nine-year high of 2.85 per cent.
The Reserve Bank of Australia’s decided on a second consecutive quarter-percentage-point rise in the cash rate at its latest monthly board meeting following four consecutive half-percentage-point hikes.
When the bank lifted the rate by a quarter percentage point in May, it was Australia’s first rate hike in more than 11 years. The cash rate is now at its highest point since May 2013, when the bank cut the rate from three per cent to 2.75 per cent.
Reserve Bank Governor Philip Lowe said in a statement “inflation in Australia is too high”, and his board “expects to increase interest rates further over the period ahead”.
The bank “remains resolute in its determination to return inflation” to a target band of two per cent to three per cent by raising the cost of money, Lowe said.
Inflation rose from an annual rate of 6.1 per cent in the June quarter to 7.3 per cent in the September quarter. The Treasury Department forecast last week that inflation would peak at 7.75 per cent before the end of the year. But the bank expected a peak of “around eight per cent”.
Treasurer Jim Chalmers said the rate hike reaffirmed his government’s decision to restrain spending in its economic plan for the current fiscal year which he released last week in the annual budget.
“As today’s decision has shown, inflation is the No 1 challenge in our economy. It’s the No 1 focus of the government. It’s the No 1 focus when it comes to the budget that we handed down last week,” Chalmers told reporters.
Treasury documents released last week forecast the economy would grow 3.25 per cent in the current fiscal year that began on July 1 before plummeting to 1.5 per cent in 2023-24 as rising interest rates hit consumer spending. Growth is then forecast to creep up to 2.25 per cent in 2024-25 and to 2.5 per cent the following year.
Chief Executive of the Australian Chamber of Commerce and Industry Andrew McKellar, the nation’s largest business group, warned the bank against pushing the economy into recession.
“We have to be careful. I think we can’t have a situation where it’s tightened too rapidly,” McKellar told Australian Broadcasting Corp.
“If they squeeze the life out of the economy, then really the damage is going to be quite significant and we don’t want to end up with that outcome,” he added.
