Australian central bank signals future rate rises

CANBERRA, May 17: The Reserve Bank of Australia (RBA) on Tuesday signalled that interest rates would continue to rise following its first rise in 12 years of 0.25 per cent earlier this month.

The RBA said in its monthly board meeting on Tuesday that it had considered lifting the cash rate by 0.4 per cent, indicating a recognition of the seriousness of inflation, which has tipped 5 per cent in the nation.

“An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates,” the board said.

The RBA also considered a 0.15 per cent rise but rejected it given that “it was highly probable that further rate rises would be required”.

Australia’s interest rates dropped to historical lows of just 0.1 per cent during the pandemic to help stimulate the economy. The Bank had previously indicated that rates would not be raised until 2024.

The RBA attributed high inflationary levels to a rebound in domestic demand and supply-side issues including the Ukraine crisis, which has lifted commodity and food prices.

“The significant rise in inflation had been largely the result of global factors, which were likely to have a more temporary effect on inflation,” said the board.

It also cautioned against “inflation psychology”.

As citizens believe inflation was on the rise, they would become more likely to spend more and quickly, further exacerbating demand-side inflationary pressures.

The RBA would meet at the beginning of June to make the next policy decision.

The board noted that monthly decisions would allow the review of interest settings as additional information comes in.