(Bloomberg) — Australia’s central bank raised interest rates by more than economists expected and said it’s committed to “doing what is necessary” to rein in broadening inflationary pressures.
The Reserve Bank raised its cash rate by 50 basis points to 0.85%, citing rising consumer prices for its decision Tuesday. The result was predicted by just three of 29 economists including Goldman Sachs Group Inc., with a majority having forecast a 25-basis-point increase.
“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” Governor Philip Lowe said in a post-meeting statement. “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
Australian three-year yields rose as much as 19 basis points to 3.16% after the decision. Ten-year yields climbed 6 basis points to 3.54% while the Australian dollar jumped 0.6% to 72.34 US cents.
Central banks worldwide are grappling with worse-than-anticipated inflation driven by disruptions to the supply of goods and energy amid virus lockdowns in China and Russia’s war on Ukraine. Australia is among more than 60 monetary authorities — including a Federal Reserve that’s also opting for larger moves — to have raised rates this year.
Today’s hike was the first under new Prime Minister Anthony Albanese and will add to the economic challenges facing his Labor government after it won an election last month that ended nine years of center-right rule.
The tightening is also a test of consumer sentiment, which has been steadily sliding on concerns higher mortgage repayments will further weigh on heavily indebted households. They’re already grappling with rising living costs and tepid wages growth. A weekly gauge released hours ahead of the rate decision showed consumer confidence dropped 4.1% last week to its lowest level since mid-August 2020.
Treasurer Jim Chalmers earlier Tuesday reiterated warnings of significant financial stress for households.
“It will be a difficult winter and it will be an expensive winter,” he said. “We are in the midst of a full-blown cost of living crisis and electricity prices and gas prices are unfortunately part of that pain.”
To try to damp surging prices, the RBA embarked on policy tightening in May, having earlier in the year ditched its bond-buying program. Figures last week showed solid momentum in the A$2.2 trillion ($1.6 trillion) economy and rising labor costs, fanning fears of even faster price gains.
Private surveys also point to an economy running hot, adding to evidence that inflationary pressures in Australia have intensified since the first three months of the year, when consumer prices surged 5.1%.