Australia’s central bank surprised everyone on Tuesday, May 2nd, by raising the benchmark interest rate by one quarter percentage point to 3.85%, even though they paused their increases last month and inflation levels have been slowing down. The Reserve Bank of Australia’s meeting on April 4th was the first one in a year with the same interest rate of 3.6%.
The Australian Bureau of Statistics reported last week that the inflation rate decreased to 7% in the March quarter, from 7.8% in the December quarter. Bank Governor Philip Lowe said that inflation was still too high and needed to be in the bank’s target range of 2-3%. He believed that it would take some time for the rate to get to their target range of 4.5% by 2023 and 3% from mid-2025.
The increase in the cash rate marks the highest it has been since April 2012. Alan Oster, the National Australia Bank’s chief economist, was surprised by the rate hike, but expects it to be the last one for this cycle. Jim Chalmers, the treasurer, said that the decision is a reminder of the tough economic circumstances in Australia.
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