Australia Raises Key Interest Rate to 4.85%, Highest in 18 Years
High oil prices prompt fifth rate hike this year
Inflation has remained above target for five years
The Reserve Bank of Australia (RBA) said Tuesday it had raised its key interest rate again to 4.85%. The rate is now at its highest level in 18 years, since the 2008 financial crisis. The latest increase was prompted by inflation that has remained stubbornly high amid elevated oil prices, but concerns about a recession are growing in Australia and abroad, prompting calls for the central bank to be cautious about further hikes.
According to CNBC, the RBA announced Tuesday that it had raised its key interest rate by 0.25 percentage points to 4.85% following its monetary policy meeting. It was the fifth rate hike this year. Six of the nine policymakers reportedly voted for an increase, while the other three voted to leave rates unchanged.
The RBA said inflationary pressures were the main reason for the latest increase. Inflation has been slow to ease amid persistently high oil prices following the outbreak of the Iran war earlier this year, prompting the central bank to raise rates further to stabilize prices. Australia's underlying inflation rate was 3.7% in the third quarter, its highest level in two years. The RBA's inflation target range is 2% to 3%, but Australia's inflation rate has remained above that range for more than five years.
However, the RBA removed language from its previous statement saying it could raise rates further if necessary. Markets also increasingly expect the central bank to leave rates unchanged at its December meeting, interpreting the RBA's latest rate decision as less hawkish than expected. The Australian dollar fell 0.3% against the U.S. dollar to $0.6979.
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Australia's financial authorities are reportedly concerned about rising inflation while also wary of growing recession risks. CNBC noted, "Australia's gross domestic product (GDP) grew 2.1% year over year in the second quarter, down from 2.5% in the first quarter," adding, "Although controlling inflation is important, authorities also need to be mindful that high borrowing costs are putting pressure on households and economic activity."
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