CANBERRA, Australia (AP) — Australia’s central bank on Tuesday raised its benchmark interest rate for the third time in consecutive months, changing the spot rate from 0.85% from 1.35% to 1.35%.
The half percentage point increase of the Reserve Bank of Australia was the same as the increase in June.
When the bank raised interest rates by a quarter of a percentage point at its monthly board meeting in May, it was the first rate hike in more than 11 years.
An increase was widely expected at the June and July board meetings. Reserve Bank governor Philip Lowe said in May it was “not unreasonable” to expect cash interest rates to rise to 2.5%.
Lowe said on Tuesday that inflation in Australia was high, although not as high as in many other countries.
“Global factors are responsible for much of Australia’s rise in inflation, but domestic factors also play a role,” Lowe said in a statement.
“Strong demand, a tight labor market and capacity constraints in some sectors are contributing to upward pressure on prices,” he said, adding that the recent floods also affected some prices.
The Reserve Bank adjusts interest rates to keep inflation within a target range of 2 to 3%.
The most recent official inflation data was for the March quarter, when the annual rate rose to 5.1%.
It was the highest annual rate since 2001, when a newly introduced 10% federal consumption tax caused a temporary spike.
Inflation in the March quarter was well above the quarterly rate of 3.5% reported three months earlier. The increase was caused by an increase in fuel and housing costs and damage to crops from flooding last year.
Flooding in and around Sydney since Saturday has further damaged crops in the region and is likely to push the prices of some fruits and vegetables up.
Lowe predicted last month that inflation would peak at 7% by the end of this year.
Before the bank’s announcement, treasurer Jim Chalmers anticipated the rate hike and acknowledged that it would cause financial pain for many.
“Just because these rate hikes are expected doesn’t mean they hurt less. For many families and many homeowners, with household budgets already overstretched, they will have to find even more to pay the mortgage,” Chalmers said Tuesday.
“Many people are already struggling with the skyrocketing cost of essentials such as groceries, petrol and electricity, and this will make life even more difficult for many Australians,” Chalmers added.
Rod McGuirk, The Associated Press