Australia interest rate hiked as ‘extraordinary support’ pledged – All you need to know

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The move which was announced by Australia’s central bank on Tuesday was widely expected and comes at a time where countries around the world are contending with unprecedented levels of inflation. The consumer price index (CPI) for Australia jumped 2.1 percent alone for the first quarter of this year.

The new changes will see the cash rate grow by 25 basis points to 0.35 percent.

In fact, the hike is greater than the media forecast of 32 economists by Reuters which came to an estimate of 15 basis points to 0.25 percent.

Philip Lowe, Governor of the Reserve Bank of Australia, said it 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 Covid pandemic.

He said: “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. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Though Mr Lowe did acknowledge that inflation had picked up more than expected it remains lower than in most other advanced economies.

He added: “This rise in inflation largely reflects global factors. But domestic capacity constraints are increasingly playing a role and inflation pressures have broadened, with firms more prepared to pass through cost increases to consumer prices.”

The rise was largely anticipated by market analysts as a result of the surging level for inflation.

When Australia’s CPI jumped 2.1 percent for the first quarter it exceeded expectations of a 1.7 percent growth rate.

On an annual basis, consumer inflation rocketed 5.1 percent, which represents the highest figure since 2001.

The mounting score was also higher than expectations for a 4.6% increase.

During the last quarter prices for goods such as food and petrol swelled heavily.

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The outlook is expected to get worse in the short-term before improving, but it is hoped that over time inflation will level off.

Mr Lowe said he expects inflation to eventually decline back toward the country’s target range of between two and three percent.

Meanwhile, Australia’s gross domestic product (GDP) “remains positive” according to the Governor.

GDP in the country is forecast to grow by 4.25 percent during the course of 2022 and two percent next year.

However, he did note that uncertainties created by the Russian invasion of Ukraine and Covid disruptions in China could yet impact the global economy.

The war in Europe is in the middle of its third month and has created a raft of energy issues for the wider world to contend with.

For example, in the UK the latest energy price cap has added an estimated £700 extra per year in bills for the average household.

The new figure came into effect at the start of April and is expected to grow once more later this year partly due to pressures created by the conflict.

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