Australia’s central bank raised its key interest rate by half percentage points citing strong rise in inflation.
The policy board of the Reserve Bank of Australia, headed by Governor Philip Lowe, decided to lift the cash rate target by 50 basis points to 0.85 percent from 0.35 percent.
Economists had forecast the bank to raise the rate by 25 basis points. This was the second consecutive rate hike after lifting a quarter-point in May.
The central bank expects inflation to increase further, but then decline back towards the 2-3 percent range next year. Today’s increase in interest rates will assist with the return of inflation to target over time, Lowe said.
Further, he said the resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.
The Board expects to take further steps in the process of normalizing monetary conditions in Australia over the months ahead, the governor said. 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.
With the second quarter inflation data due by end-July, the bank is likely to hike the rate by another 50 basis points in both July and August and perhaps even longer, Marcel Thieliant, an economist at Capital Economics, said.
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