The Australian central bank hikes interest rates for the second time in five weeks

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Australia’s central bank hiked its benchmark interest rate for the second time in five weeks on Tuesday, raising interest rates from 0.35% to 0.85%.

When the Reserve Bank of Australia raised interest rates by a quarter of a 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 Australia’s year-to-date inflation rose to 5.1% in March. This is the highest annual rate since 2001, when a newly introduced 10% federal consumption tax caused a temporary increase.

Treasurer Jim Chalmers announced more rate hikes on Tuesday and said inflation in Australia was set to get worse.

“It is already clear that inflation will be significantly higher than the current 5.1%,” Chalmers told the Australian Broadcasting Corp. Hours before the bank’s rate decision was announced.

“Inflation will get worse before it gets better. That’s the trajectory we inherited,” Chalmers added.

An election on May 21 brought Chalmers’ centre-left Labor Party to power. She criticizes the level of debt of the previous conservative government.

Chalmers said he will 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% before next year.

The Reserve Bank of Australia adjusts interest rates to keep inflation within a target range of 2% to 3%.

“Inflation in Australia has increased significantly. Inflation, while lower than most other advanced economies, is higher than previously expected,” Lowe said in a statement.

“Global factors, including COVID-related supply chain disruptions and the war in Ukraine, are responsible for much of this surge in inflation. But domestic factors are also playing a role, as capacity constraints in some sectors and the tight labor market are contributing to upward pressure on prices,” Lowe added.

Inflation was significantly higher in the most recent quarter from 3.5% in the previous quarter, on the back of increases in fuel and housing costs and damage to crops from the recent floods.

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