Australia raises interest rates for the first time in 12 years

This move aims to bring inflation back to the target threshold of 2-3%. This is the first time the country’s central bank has raised interest rates in more than a decade.

On May 3, RBA Governor Philip Lowe explained that the decision to raise interest rates is necessary to ensure inflation returns to the target threshold and also does not ignore the possibility that there will be a new rate hike in the near future. next.

Mr. Lowe forecast core inflation at around 4.75% this year, CPI around 6%. The RBA expects with the measures in place, inflation will return to 3% by mid-2024.

More than a month ago, the RBA still showed patience and affirmed to keep the record low interest rate of 0.1%, although many central banks around the world have moved to tighten monetary policy. However, with the increasing price trend, RBA could not sit still.

The US Federal Reserve (Fed) is expected to have more rapid interest rate hikes as prices are climbing at the fastest rate in decades. The Bank of Canada recently raised its key interest rate target from 0.5% to 1% – the steepest increase in two decades. The Reserve Bank of New Zealand in mid-April also raised its key interest rate by 50 basis points to 1.5%…

The reality in Australia shows that inflation is also becoming a big problem even for an economy that has benefited from the energy crisis, thanks to key exports such as iron ore and coal.

In the first quarter of this year, the consumer price index (CPI) of this country increased by 5.1% year-on-year. Core inflation also spiked above the RBA’s 3.7% full-year target.

Australian businesses are struggling to cope with the impact of rising inflation, while surveys show consumers are tightening their spending.

The last time the RBA raised interest rates was in November 2010. The country’s roughly one million mortgage homeowners have never experienced an interest rate hike in decades. Higher borrowing costs will also test the stability of Australia’s housing market – one of the most indebted in the developed world.

Quynh Trang (according to WSJ)