Australia raises interest rates for first time since 2010
RBA lifts official cash rate for first time in more than 11 years in a move that will stoke cost-of-living pressures
The Reserve Bank has lifted its official cash rate for the first time in more than 11 years in its first intervention in a federal election since John Howard lost office in late 2007.
The central bank lifted its cash rate target from the record low 0.1% it has hovered at since November 2020, during the depths of the Covid pandemic. It was raised to 0.35%, and the RBA signalled more rises to come.
“The board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic,” Governor Philip Lowe said in a statement.
“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up,” he said. “Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”
The increase was widely expected after consumer price inflation spiked in the March quarter, with both headline and underlying inflation climbing to their highest levels in more than two decades.
While most market economists had expected the cash rate increase today the move came despite Lowe’s earlier assurances that he wanted to see both the inflation figures but also wages data – not due out until 18 May – before lifting rates. That failure to signal today’s move could damage the credibility of future comments from Lowe and the RBA, some economists have said.
“Inflation has picked up significantly and by more than expected, although it remains lower than in most other advanced economies,” Lowe said.
The verdict will likely stoke the cost-of-living debate during the election campaign, and potentially make it harder for the Morrison government to spruik its economic management credentials. Others, though, will be looking to see what promises Labor under an Anthony Albanese government can deliver to ease inflationary pressures.