Australian central bank lifts rates to 10-year high
2 Min Read
Australia's central bank raises interest rates and attempts to avoid recession.
-
A man walks past the Reserve Bank of Australia building in Sydney, Australia on Oct. 7, 2021. (AP)
Australia's central bank raised interest rates to a 10-year high on Tuesday, attempting to contain rising inflation while avoiding a recession.
The Reserve Bank of Australia increased borrowing costs by 25 basis points to 3.35 percent, the ninth increase in a row and the highest rate since October 2012.
The widely anticipated move comes as central banks around the world tighten monetary policy in response to soaring food and energy prices caused in part by the Ukraine conflict.
Read next: Fed says 'couple more rate hikes' might help against inflation
Following the announcement on Tuesday, the bank's board stated that global inflation remained "very high" (the consumer price index hit a three-decade high of 7.8 percent in October-December) and warned that further increases were likely in the coming months.
Australia, like most other countries dealing with inflation, must strike a delicate balance between bringing prices under control while not overreacting and triggering a recession.
Moreover, the International Monetary Fund last year forecasted the country should narrowly avoid a contraction.
Will people be able to pay?
Another significant risk is whether Australian homeowners will be able to afford the higher interest rates tacked on to their mortgages.
Last year, market research firm Roy Morgan estimated that one in every five Australian households was experiencing "mortgage stress" and struggling to meet repayments.
The RBA acknowledged some households were "experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living". Senior government minister Jim Chalmers defended the bank's decision.
"The Reserve Bank makes these decisions independently and it's not our job in this place to interfere or to second-guess their decision-making or pressure them in any way," he told parliament after the announcement.
Australia has also temporarily capped wholesale gas and coal prices in an effort to reduce electricity prices, which are expected to rise by up to 50% in the next two years.
