Australia’s central bank yesterday hiked interest rates to an 11-year high and warned that further increases might be on the horizon to get surging prices under control.
The Reserve Bank of Australia lifted the key rate 25 basis points to 4.1 percent, its highest level since May 2012, with Governor Philip Lowe saying inflation had “passed its peak.” but was still stubbornly high.
Most analysts surveyed by Bloomberg had forecast that officials would stand pat, while the announcement saw the Ausralian dollar jump more than 1 percent against the US dollar.
Photo: Bloomberg
However, stocks sank about 1 percent in Sydney.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable time frame,” Lowe said in a statement.
“High inflation makes life difficult for people and damages the functioning of the economy,” he added.
Government figures released last week showed prices surged 6.8 percent in April, up from 6.3 percent in March, outstripping previous forecasts that suggested a drop.
“Recent data indicate that the upside risks to the inflation outlook have increased and the board has responded to this,” Lowe said.
The latest rate hike heaps further pressure on mortgage holders who are, on average, already forking out hundreds of Australian dollars more each month to meet their repayments.
Lowe said that many Australian households were feeling a “painful squeeze on their finances.”
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” he said.
The decision comes after the independent Fair Work Commission lifted the national minimum wage by 5.75 percent starting July 1.
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