Reserve Bank of Australia Commences Interest Rate Up-Cycle

May 3, 2022

The Reserve Bank of Australia today engineered its first interest rate increase of any size since November 2010, raising the Official Cash Rate by a greater-than-expected 25 basis points to 0.35%. Governor Lowe released a statement that asserts officials are “committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.” CPI inflation accelerated from 1.1% a year ago to 5.1% now and is projected to exceed the target ceiling of 3% by a factor of two this year. A return to target is desired by mid-2024, and while much of the rise in Australian inflation is attributed to external factors, the statement concedes that some of the problem reflects domestic factors like a tightened labor market. Australia’s interest rate benchmark had been at a record low of 0.10% since November 2020, remains 40 basis points below its pre-pandemic level, and seemingly has plenty of additional scope for moving up over the rest of this year.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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