CANBERRA, Australia (AP) — Australia’s central bank boosted its benchmark interest rate on Tuesday for a seventh consecutive month to a nine-year high of 2.85%.
The Reserve Bank of Australia’s decided on a second consecutive quarter-percentage-point rise in the cash rate at its latest monthly board meeting following four consecutive half-percentage-point hikes.
When the bank lifted the rate by a quarter percentage point in May, it was Australia’s first rate hike in more than 11 years. The cash rate is now at its highest point since May 2013, when the bank cut the rate from 3% to 2.75%.
Reserve Bank Gov. Philip Lowe said in a statement “inflation in Australia is too high,” and his board “expects to increase interest rates further over the period ahead.”
The bank “remains resolute in its determination to return inflation” to a target band of 2% to 3% by raising the cost of money, Lowe said.
Inflation rose from an annual rate of 6.1% in the June quarter to 7.3% in the September quarter.
The Treasury Department forecast last week that inflation would peak at 7.75% before the end of the year. But the bank expected a peak of “around 8%.”
Treasurer Jim Chalmers said the rate hike reaffirmed his government’s decision to restrain spending in its economic plan for the current fiscal year which he released last week in the annual budget.
“As today’s decision has shown, inflation is the No. 1 challenge in our economy. It’s the No. 1 focus of the government. It’s the No. 1 focus when it comes to the budget that we handed down last week,” Chalmers told reporters.
Lowe said Australia’s economy was “continuing to grow solidly.”
Treasury documents released last week forecast the economy would grow 3.25% in the current fiscal year that began on July 1 before plummeting to 1.5% in 2023-24 as rising interest rates hit consumer spending. Growth is then forecast to creep up to 2.25% in 2024-25 and to 2.5% the following year.
Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, the nation’s largest business group, warned the bank against pushing the economy into recession.
“We have to be careful. I think we can’t have a situation where it’s tightened too rapidly,” McKellar told Australian Broadcasting Corp.
“If they squeeze the life out of the economy, then really the damage is going to be quite significant and we don’t want to end up with that outcome,” he added.