Australia’s interest rate decision May 2022

Australia’s consumer price index jumped 2.1% for the first quarter of 2022, with prices of food, petrol and other consumer goods all rising.

Ian Waldie | Bloomberg | Getty pictures

Australia raised interest rates for the first time in more than a decade, a widely expected move as consumer prices rise.

The central bank said on Tuesday that the cash interest rate will increase by 25 basis points to 0.35% ̵[ads1]1; the first interest rate increase since November 2010.

Philip Lowe, governor of the Reserve Bank of Australia, said it was time to start withdrawing some of the “extraordinary financial support” that was put in place to help the Australian economy during the pandemic.

“The economy has proven resilient and inflation has picked up faster, and to a higher level, than expected,” Lowe said in a statement. “There is also evidence that wage growth is picking up. Given this, and the very low interest rates, it is appropriate to start the process of normalizing monetary conditions.”

The rise was more than the analyst estimate for 15 basis points to 0.25%, according to the median forecast of a Reuters survey of 32 economists.

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Analysts had widely expected the central bank to raise interest rates, given the rapid rise in inflation. Prices of food, petrol and other consumer goods all rose in the last quarter.

Australia’s consumer price index jumped 2.1% for the first quarter, exceeding expectations of a 1.7% increase, data showed last week. On an annual basis, consumer inflation rose by 5.1% – the highest since 2001 and higher than expectations of an increase of 4.6%.

Lowe acknowledged in his statement that inflation had picked up more than expected, although it is still lower than in most other advanced economies.

“This increase in inflation largely reflects global factors. But domestic capacity constraints are increasingly playing a role and inflationary pressures have expanded, with companies more prepared to pass on cost increases to consumer prices,” he said.

A further increase in prices is expected in the short term, but as supply-side disruptions have been resolved, Lowe said that inflation is expected to fall back towards the country’s target range of between 2% and 3%.

The outlook for Australia’s gross domestic product “remains positive” and is expected to grow by 4.25% by 2022 and 2% next year, Lowe said. However, he noted that there were uncertainties that could affect the global economy, such as the Russia-Ukraine war and Covid disruptions in China.

This is breaking news. Please check back for updates.

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