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Australia's central bank increases interest rates for the third month

Australia's central bank increases interest rates for the third month

July 6, 2022: -On Tuesday, Australia’s central bank raised interest rates for a third straight month and flagged more ahead as it is finding it challenging to contain growing inflation even to trigger an economic fall.

In its July policy meeting, the Reserve Bank of Australia lifted its cash rate by 50 basis points to 1.35%, which marks 125 basis points of walks since May and the fastest series of moves from the year 1994.

“The Board expects to take more steps in the process of formalizing monetary conditions in Australia than the months ahead,” said RBA Governor Philip Lowe in a comment.

The hike was expected in markets, and the local dollar came down slightly after $0.6863 while futures narrowed the odds on another half-point hike in August.

Lowe is confident the economy could withstand the jolt with unemployment at five-decade lows of 3.9% and job vacancies at all-time highs. Household demand has again increased, thanks partly to 260 billion Australian dollars in extra savings accumulated during the pandemic lockdowns.

Still, higher borrowing costs are bound to drag on spending power, given households owe A$2 trillion in mortgage debt and home values have started reaching down after a bumper in 2021.

The hikes delivered so far will add around A$400 a month in repayments to the middle A$620,000 mortgage, which is on top of higher costs for energy, petrol, health, and food.

“Rates were expected to rise, and they’re expected to bite,” was the response of Treasurer Jim Chalmers, whose Labor Party won power less than two months ago.

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