Australian cash rate increases to 2.85% for the seventh month in a row

Tuesday marked the seventh consecutive month that the Australian central bank increased its benchmark interest rate, which now stands at 2.85%.

At its most recent monthly board meeting, the Reserve Bank of Australia voted to increase the cash rate by a quarter percentage point for the second time in a row, following four straight half-point increases.

It had been more than 11 years since Australia had had a rate increase until the bank increased the rate by a quarter of a percentage point in May. Since the bank reduced the rate from 3% to 2.75% in May 2013, the cash rate has now reached its highest level.

Australia's inflation is too high, according to Reserve Bank Governor Philip Lowe, and his board "expects to hike interest rates further during the term ahead."

By increasing the cost of borrowing, the bank "remains committed in its effort to return inflation" to a target range of 2% to 3%, Lowe said.

From a quarterly annual rate of 6.1% in the June quarter to 7.3% in the September quarter, inflation increased.

Prior to the end of the year, the Treasury Department predicted that inflation would reach a peak of 7.75%. However, the bank anticipated a peak of "around 8%."

Jim Chalmers, the treasurer, stated that the rate increase supported the government's decision to limit spending in the current fiscal year, which he announced last week in the annual budget.

As today's judgement has demonstrated, inflation is our economy's biggest problem. It is the government's top priority. When it comes to the budget that we gave down last week, it is our first priority, Chalmers told reporters.

Australia's economy, according to Lowe, "is continuing to grow solidly."

According to Treasury forecasts made public last week, the economy would expand by 3.25% in the current fiscal year, which started on July 1, before contracting to 1.5% in 2023–2024 as rising interest rates have a negative impact on consumer spending. Then, growth is predicted to gradually increase to 2.5% in 2024–2025 and 2.5% in 2025–2026.

The nation's largest business organisation, the Australian Chamber of Commerce and Industry, led by Andrew McKellar, issued a warning to the bank not to cause an economic downturn.

We must exercise caution. I don't think it should be tightened too quickly, McKellar said Australian Broadcasting Corporation.

He continued, "We don't want to arrive at that conclusion. If they suck the life out of the economy, then truly the harm is going to be fairly serious.