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Australia’s inflation rate exceeds central bank target range
The Reserve Bank of Australia (RBA) raised its key interest rate by 25 basis points on Tuesday to 4.6% from 4.35%, reaching a 15-year high as part of efforts to curb inflation affected by rising energy and commodity prices.
The decision was in line with analysts’ expectations and is the fourth rate hike from the bank this year, with a total of 100 basis points, according to Bloomberg.
The bank said in a statement that some of the warnings of interest rate hikes emerged at its August meeting and have now materialized.
“The conflict in the Middle East has widened, and energy prices are now higher than we assumed,” the bank added, noting that AI-related demand has led to a rapid rise in the prices of technology-related goods.
The central bank said it would “continue to do whatever it deems necessary” to contain inflation, including raising interest rates again.
The bank said the decision to raise the interest rate was “unanimous,” stressing its readiness to continue raising it if needed to counter inflation.
The rate hike comes at a time when Australia’s inflation rate is well above the central bank’s target range of 2% to 3%.
Inflation hit 4.6% in March, before easing to 3.5% in July, according to the latest data, and last month’s inflation data is due on Wednesday.
Following RBA Governor Michelle Pollock’s remarks, Australian 3-year monetary policy sensitive yields fell 8 basis points, while the Australian dollar fell below 70 US cents for the first time since early August.
A blow to mortgage holders
In the markets, Australian stocks opened higher in morning trading ahead of the central bank’s decision, while U.S. bonds rose as Wall Street closed lower, while oil traded above $107 a barrel.
Australia’s ABC reported that the decision would be a blow to homeowners with large mortgages, as it is the highest rate of cash interest faced by millions of households since they took out mortgages after 2011.
Individuals with high-interest savings accounts will see an increase in interest rates on their savings following today’s decision, if their banks tolerate higher interest rates on their accounts.
Macquarie Bank announced that it would pass on the full interest rate increase to mortgage borrowers, raising the benchmark interest rate on variable home loans by 0.25% per annum from October.
Tim Wilson, the shadow chancellor of the exchequer, criticised the level of government spending, saying that “the main driver of Australia’s inflation problem is government spending”.
He added that the government “played a tug-of-war with the central bank, and now families are paying the price again.”
The government has blamed the conflict in the Middle East for rising inflation, while Reserve Bank of Australia Governor Michelle Pollock said the conflict was making everyone “poorer” and avoided answering a question about government spending.