The Reserve Bank of Australia raised the official interest rate by 0.25 percentage points. This is the seventh consecutive hike in a frantic cycle of tightening measures meant to contain inflation, which is now anticipated to reach a higher peak.
The overnight cash rate has increased from 0.1 percent to 2.85 percent since early May, which is the fastest tightening cycle in almost 30 years. The Melbourne Cup Day increase was in line with predictions.
More interest rate increases will be required to stifle price increases, according to RBA Governor Philip Lowe, who said the bank now anticipated inflation to peak at 8%, above the 7.75% predicted in last week’s government budget.
In his customary post-meeting statement, Dr. Lowe stated, “As is the case in other countries, inflation in Australia is too high.” He added that while global forces explained some pressures, robust domestic demand was also a factor.
The board remains steadfast in its commitment to bring inflation to target and will take whatever steps are necessary to accomplish so. “The board expects to increase interest rates further over the period ahead,” it says.
According to Treasurer Jim Chalmers, inflation is both the economy’s top challenge and the Alban government’s top priority.
The pressure on Australians is coming from all over the world, Dr. Chalmers said, and it can be felt at the dinner table because of increasing interest rates and inflation.
According to rate comparison website RateCity, at 2.85 percent, monthly payments on a 25-year, $500,000 mortgage will have jumped by $760 since May, $1140 for a $750,000 mortgage, and $1520 for a $1 million loan.
Inflation heading higher to 8pc
With the most recent increase, the cash rate has reached its highest level since April 2013, and economists are divided over whether the RBA may be nearing the finish line. The future is also complicated by what happens to inflation.
The headline inflation rate increased by 1.8% in the third quarter of 2018, shockingly bringing the annual growth rate to 7.3%. The outcome exceeded forecasts of quarterly growth of 1.6% and annual growth of 7%.
The RBA anticipates annual inflation to peak at roughly 8% and believes it will remain over the bank’s goal range of 2% to 3% until at least 2025, which is later than previously anticipated.
“A healthy economy and a prolonged period of full employment require price stability. Due to this, the board’s top aim, according to Dr. Lowe, is to gradually bring inflation back to the 2 to 3 percent range.
It aims to accomplish this while maintaining a stable economy. The road ahead is still rocky and unknown as we try to strike this equilibrium.
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