SYDNEY (Reuters) – Australia’s central bank is raising interest rates for the third straight month in a bid to combat high inflation.
The interest rate rose by half a point from 0.85 to 1.35 percent, the Reserve Bank of Australia (RBA) announced on Tuesday. Since May, the interest rate has risen by 1.25 points – this is the fastest series of increases since 1994. And there is no end in sight soon. “The Board expects further steps to normalize monetary conditions in Australia to be taken in the coming months,” said Central Bank Governor Philip Lowe.
Lowe was confident that the economy would not be choked off by the increasing price of money. At 3.9 percent, the unemployment rate is at its lowest level in five decades, while the number of vacancies is at an all-time high. Consumer demand from private households has also held up well. This is attributed to the fact that private households accumulated additional savings of around 171 billion euros during the corona pandemic, since going out and traveling, for example, were only possible to a limited extent.
However, higher borrowing costs will inevitably reduce purchasing power. Australians are sitting on A$2 trillion in mortgage debt as property values begin to fall after a record 2021. The rate hikes so far will add about $400 a month to repayments on an average $620,000 mortgage.
In addition, there are higher costs for energy, petrol, health and food. The severe flooding of the past few days in the east of the country is likely to drive up the prices for vegetables and fruit. “It was to be expected that interest rates would rise,” Treasury Secretary Jim Chalmers said.
In the second quarter, inflation is likely to have risen to at least six percent – a level not seen since sales tax was introduced in 2000. This is one reason why the financial markets are expecting another hike of half a point in August and are pricing in a base rate of at least 3.0 percent at the end of the year. Higher interest rates can dampen demand and thus upward pressure on prices.
(Report by Wayne Cole, written by Rene Wagner. Edited by Christian Gtz. If you have any questions, please contact our editorial team at [email protected])