Reserve Bank of Australia raises rates for first time since 2010 to tame soaring inflation


SYDNEY – The Reserve Bank of Australia raised its official cash rate for the first time since Tuesday, November 2010 to control inflation, which rose to its highest level in 20 years.

The official cash rate rose to 0.35% from an all-time low of 0.10%, a move that was larger than many economists expected, and the RBA indicated that there would be more increases. in the coming months.

“The Board is committed to doing whatever it takes to ensure that inflation in Australia returns to its target over time. This will require a further rise in interest rates over the next period,” the RBA governor said. , Philip Lowe, in a statement.

Australian consumer prices rose 5.1% year-on-year in the first quarter, and core inflation rose 3.7%. Money market traders are betting that the RBA will raise the official cash rate by around 2.5% by the end of the year due to the sudden onset of inflationary risks.

The decision to raise interest rates makes the RBA more aligned with many of its global counterparts who have already taken, or are pointing to, aggressive action to curb inflation.

The RBA has had to adjust radically quickly to changing trends in the economy, having said in late 2021 that interest rates could remain unchanged until 2024.

With a million households in Australia never experiencing rising interest rates, taking advantage of the brakes on politics is likely to have a major impact on confidence.

There are already indications that confidence is falling. Consumer confidence fell 6.0% last week, according to a weekly poll released Tuesday earlier by ANZ Bank and Roy Morgan poll.

The RBA expects unemployment to fall to a 50-year low next year, but inflation will remain above its target band at least until mid-2024.

The RBA predicted that general inflation will rise to 6% in 2022, and that core inflation will soar to 4.75%.

“Given both the progress toward full employment and the evidence on prices and wages, a certain withdrawal of the extraordinary monetary support provided through the pandemic is appropriate,” Lowe said.

– Write to James Glynn at james.glynn@dowjones.com



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