CANBERRA, Australia (AP) — Australia’s central bank on Tuesday raised its benchmark interest rate for the second time in five weeks, pushing the cash rate from 0.35% to 0.85%.
When the Reserve Bank of Australia raised the rate by a quarter of a percentage point at its last monthly board meeting on May 3, it was the first rate hike in more than 11 years.
A rise was widely expected after official data released in April showed inflation in Australia had risen to 5.1% in the year to March. This is the highest annual rate since 2001, when a new 10% federal consumption tax created a temporary spike.
Treasurer Jim Chalmers announced further rate hikes on Tuesday, saying inflation in Australia would worsen.
“It is already clear that inflation will be significantly higher than the 5.1% it is now,” Chalmers told the Australian Broadcasting Corp. hours before the bank’s rate decision is announced.
“Inflation will get worse before it gets better. This is the trajectory we inherited,” added Chalmers.
An election on May 21 brought Chalmers’ centre-left Labor Party to power. He criticized the level of debt accumulated by the previous Conservative administration.
Chalmers said he would update the nation on inflation when Parliament resumes on July 26 for the first time since the election.
Reserve Bank Governor Philip Lowe said inflation is unlikely to fall below 3% until next year.
The Reserve Bank of Australia adjusts interest rates to keep inflation within a target range of 2-3%.
“Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than expected,” Lowe said in a statement.
“Global factors, including COVID-related supply chain disruptions and the war in Ukraine, explain much of this rise in inflation. But domestic factors are also playing a role, with capacity constraints in some sectors and the tight labor market contributing to upward pressure on prices,” added Lowe.
Inflation in the last quarter was significantly higher than the previous quarter’s 3.5%, due to soaring fuel and housing prices and crop damage from recent floods.