The Reserve Bank of Australia has announced the greatest single hike in the cash rate in 22 years as it strives to contain inflation before it spirals out of control.
According to Bloomberg, the Reserve Bank of Australia (RBA) board increased the cash rate goal by 50 basis points to 0.85 percent and suggests that additional tightening will be required.
The headline consumer price inflation rate was 5.1% for the March quarter, with automotive fuel up 35%, the most since Iraq’s 1990 invasion of Iraq. The current spike in energy prices has similarly been made worse by war after Russian invaded Ukraine in February.
What you should know
Costs for everything from food to construction materials and energy are already rising for households and businesses. Larger repayment expenses for people on variable loans will be added to this strain. The RBA’s medium-term goal is to have an underlying inflation range between 2% and 3%. Compared with a 3.7% pace in the March quarter that’s expected to accelerate in the current quarter if not beyond. Power price increases of 10% or more will kick for many households and businesses from 1 July.
Despite the fact that much of the inflation is imported, the RBA sees the need to curb excessive demand.
While home prices have declined in numerous regions in recent months, they are still more than 25% higher than before the epidemic, producing a wealth impact that will support spending even as interest rates rise, according to the RBA. Most central banks are grappling with how to restore interest rates to pre-Covid crisis levels. While also limiting price increases without plunging economies into recession.
Many economies have similar difficulties to Australia’s. For the second month in a row, the Bank of Canada increased its cash rate by 50 basis points.