SYDNEY: Australia’s central bank resumed raising interest rates yesterday, judging it couldn’t wait any longer to respond to rising energy costs and resilient domestic demand that threaten to intensify inflationary pressures.
The Reserve Bank of Australia’s (RBA) board lifted the cash rate to 4.6% from 4.35%, as widely expected, taking rates to the highest level in about 15 years.
The nine-member policy committee voted unanimously to deliver its fourth hike this year, according to a statement. Governor Michele Bullock was due to hold a press conference in Sydney.
“Since the previous meeting, some of the upside risks to inflation are materialising,” the rate-setting board said in its statement.
“There have been further disruptions to global oil supply and recent data suggested that growth and inflation in Australia have been higher than expected.”
The RBA joined counterparts in Europe, the United States and Japan in raising rates this month to tackle escalating price pressures fuelled by the United States-Israel war on Iran.
With little prospect of an early resolution to the conflict and energy prices surging across the global economy, central banks are having to act.
RBA officials had sent increasingly hawkish signals in recent weeks and indicated a willingness to hike if needed to try to ensure inflation heads back to its 2% to 3% target band.
The central bank increased borrowing costs at its first three meetings of the year, worrying about building price pressures even before the energy shock unleashed by war in the Middle East.
The RBA stood pat at 4.35% at its past two meetings, trying to gauge the impact of its rapid-fire moves on the economy.
Yesterday’s hike now takes cumulative tightening this year to one percentage point.
The risk of a follow-up rate rise in November has also been widely discussed by economists due to the spectre of price pressures becoming entrenched.
The Organisation for Economic Co-operation and Development has projected that inflation in wealthy nations will linger in 2027, warning central banks, including Australia’s, to “remain very vigilant” and intervene more than they did during the post-pandemic period.
The International Monetary Fund sent a similar warning to the RBA directly this month, urging it to stand ready to hike.
Australia will release monthly inflation data for August tomorrow, which is likely to be an important input for policymakers, though the central bank’s favoured quarterly report will be available before the next meeting in November.
Yesterday’s tightening is set to weigh further on Australia’s housing market, already in a downturn and with linkages across the economy.
It may push unemployment higher after the jobless rate rose to 4.6% last month, with Bullock saying it may need to climb towards 5% to help ease price pressures. — Bloomberg
