Australian central bank hikes rate for 1st time in 11 years

CANBERRA Australia –

Australia’s central bank on Tuesday lifted its benchmark interest rate for the first time in more than 11 years. In a potentially dangerous move for a government seeking reelection on May 21, the cash rate rose from 0.1% – 0.35%.

A rise was widely expected after official data released last week showed that Australia’s inflation rose to 5.1% in the year through March. This is the highest annual inflation rate since 2001, when a federal consumption tax of 10% was temporarily introduced.

Inflation was sharply higher in the March quarter than 3.5% three months prior. The March result was driven largely by an increase in fuel costs and housing costs, as well food shortages resulting from recent Australian floods.

The Reserve Bank of Australia adjusts the interest rate to maintain inflation within a target range of 2%-3%. The bank’s Governor Philip Lowe saidAlthough inflation was higher than expected, it remained below the average for advanced economies.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” Lowe said.

“There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions,” Lowe added.

The cash rate has been at a record low 0.1% since November 2020.

Lowe will be celebrating Thanksgiving in November saidDespite inflation caused by pandemics, the rate could be maintained at this level until 2024.

In November 2010, the bank increased its interest rates. The cash rate was then increased by a quarter of an percentage point to 4.75%

This is the first time since 2007 that the bank, whose independence from the government was established in legislation in 1996 has moved interest rates during a federal election.

Two weeks after the benchmark rate rose by a quarter of a percentage point to 6.75% in November 2007, Prime Minister John Howard’s conservative government was voted out of office after more than 11 years in power. Howard later apologised for this rise. saidHe felt sympathy for mortgage holders.

Prime Minister Scott Morrison’s conservative government is seeking a rare fourth three-year term at elections on May 21.

Morrison rejected a journalist’s suggestion that the rate hike would cost his government the election.

He saidHis government had already assisted Australians to cope with rising prices in March by temporarily halving gasoline tax at a cost $3 billion Australian dollars (US$2.1billion). At a cost of AU$8billion (US$5.7billion), the government provided tax offsets to millions of low and middle-income earners.

“I sympathize with Australians as they face high cost of living pressures. I sympathize with Australians when they face higher repayments on their home,” Morrison said.

“When you look around the world, there are few places that people would rather be than right here in Australia and the reason for that is the way that we’ve steered this country through one of our most difficult times,” Morrison added.

According to the Australian Bureau of Statistics (ABS), residential property prices increased by 24% in Australia last year. Australians are one of the most debt-ridden countries in the world, and they are not well prepared for an increase of the cost of living.

Opposition treasury spokesperson Jim Chalmers described the rate hike as a “full-blown cost of living crisis on Scott Morrison’s watch.”

“Scott Morrison’s economic credibility was already tattered and now it is completely shredded,” Chalmers said.

The S&P/ASX 200 fell 0.3% to 7,328.80 on Tuesday.