RBA Raises Interest Rates for the First Time in more than a Decade

The Reserve Bank of Australia has raised its benchmark interest rate for the first time in more than a decade to curb inflation that threatens the country's economic recovery from the Covid-19 pandemic.

With inflation in the United States being the fastest in decades and the labor market remaining so tight, the Federal Reserve has announced a series of rapid rate hikes. The Bank of Canada recently raised its overnight interest rate target from 0.50% to 1.0% by 0.5% points. This is the biggest rate hike in over 20 years.

The consumer price index rose 5.1% year on year in the first quarter, and core inflation also exceeded RBA's inflation target of 3.7% year on year. Economists pointed out that quarterly inflation has risen only once in the last three decades. It was when Australia introduced a 10% Goods and Services Tax in July 2000.

Australian companies are struggling to cope with the effects of rising inflation, but surveys show that consumers are becoming more depressed and budgets are tighter. RBA rate hikes will also occur during politically sensitive times in Australia's general election later this month, as rising costs of living will be an important issue.