Tuesday, August 16, 2022

RBA raises cash interest rate 0.5%, 4th straight rise

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The Australian Central Bank slowed inflation for the fourth time in a row and raised its target for the spot rate by 50 basis points to 1.85% at its August RBA council meeting.

The increase was widely expected by markets and analysts.

From the record low of 0.1% in 2020 in response to the Covid pandemic, the RBA has now increased the cash rate by 0.25%, 0.5%, 0.5% and 0.5 each monthly meeting since May. %. It is the first increases in 11 years.

At 1.85%, the spot interest rate is now at its highest level since May 2016.

A homeowner who owes $330,000 must now find about $90 more per month on top of $220 in additional repayments since May.

For a $500,000 mortgage, the additional repayments are approximately $140 per month on top of an additional $335 in additional repayments from previous increases.

Inflation is currently at its highest level since the early 1990s at 6.1% over the year to the June quarter; and at 4.9% in underlying terms, RBA Governor Philip Lowe said inflation is back in the 2-3% reach remained a high priority.

“The road to achieving this balance is narrow and shrouded in uncertainty, not least because of global developments,” he said.

“The outlook for global economic growth has been revised downwards due to pressures on real incomes from higher inflation, monetary policy tightening in most countries, the Russian invasion of Ukraine and COVID containment measures in China.”

Inflation is expected to peak later this year, with the RBA’s central forecast at 7.75% for 2022, just over 4% for 2023 and about 3% for 2024.

The Bank’s central forecast is GDP growth of 3.25% in 2022 and 1.75% in each of the next two years.

“The Australian economy is expected to continue to grow strongly this year, after which the pace of growth will slow,” Lowe said in his statement.

“Employment is growing strongly, consumer spending is resilient and business investment is picking up. National income is also boosted by a rise in the terms of trade, which is at a record high. The labor market remains tighter than it has been in many years.”

But household spending behavior remains a “major source of uncertainty,” Lowe said, adding that “the current round of hikes was needed to get inflation back on target and achieve a more sustainable supply/demand balance in the economy.” the Australian economy”, mark additional rate hikes ahead.

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