Australia raises interest rates to curb inflation ahead of polls
Australia raised interest rates for the first time in 11 years just three weeks before a general election which has been largely contested over the soaring cost of living.
The Reserve Bank of Australia raised the cash rate, its benchmark interest rate, to 0.35% from 0.1% to stem a spike in inflation that hit 5.1% in the 12 months to March.
The 25 basis point increase was stronger than some analysts had expected. It is also the first time the RBA has increased its borrowing rate in an election campaign since 2007, when John Howard, a three-term prime minister, lost Kevin Rudd.
The rise, even from a historically low rate, has forced Prime Minister Scott Morrison to defend his economic management record – his main weapon in the campaign. election campaign – when the cost of living has risen sharply.
At Geelong this week, Morrison said the rate hike should not be viewed as a political event because the RBA is independent of the government.
He then petted Anthony Albanese, leader of the opposition Labor party, who could not say what the cash rate was at the start of the campaign. “At least I know what it is,” said Morrison, whose Liberal-National coalition government follow in the polls.
The increase indicates that the RBA has move out Emergency settings, including a rate cut, are in place to help spur the economy through the coronavirus pandemic.
Philip Lowe, governor of the RBA, said on Tuesday: “The Board assesses that now is the appropriate time to begin withdrawing some of the extraordinary monetary support that has been put in place to help the economy. Australia during the pandemic. The economy proved resilient and inflation increased faster and at a higher rate than expected. ”
Lowe warned there could be another rate hike as inflation is expected to hit 6% this year. “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require further rate hikes in the near term,” he said.
Speaking at a press conference, Lowe added that the central bank will focus on normalizing interest rates after the pandemic. “It is not unreasonable to expect interest rate normalization in the near term to lead to an increase in interest rates to 2.5%,” he said.
Jim Chalmers, shadow treasurer, said Morrison’s economic reputation was “bad”, with rates rising in an uncertain economic environment. “This is Scott Morrison’s third cost-of-living crisis. This is a tripling of real wages falling, inflation soaring and interest rates about to rise,” he said.
Tim Lawless, director of CoreLogic, a property research firm, said Australian house prices had risen by 27 per cent while cash rates were at an emergency level, but the market would lose ground as rates rise.
“By raising the cash rate in an election month, the RBA has sent a clear message that it will make decisions based on its mandate and not be influenced by the political cycle,” Lawless said.
Inflation was fueled by rising gasoline, housing and food costs, putting pressure on the RBA to raise rates after months of expectations it would follow in the footsteps of central banks in New Zealand, England and America.
Josh Frydenberg, treasurer, highlighted the resilience of the economy and the falling unemployment rate. “We don’t have an ax to sharpen with the Reserve Bank. They are independent,” he said. “These are the global factors driving inflation.”
Rising costs of living and concerns about the prospect of higher exchange rates have weighed on consumer confidence, which fell 6% last week, according to economists at ANZ Bank. Signs of a sharp deceleration in real estate market also appeared.