Australia raises interest rates in possible election reshuffle | Business and economy

The Reserve Bank of Australia’s decision means millions of Australians face higher repayments on their home loans.

Australia’s central bank raised interest rates for the first time in more than a decade, following the lead of a growing list of Asia-Pacific economies taking steps to rein in rising inflation .

The Reserve Bank of Australia (RBA) on Tuesday raised the benchmark interest rate to 0.35% from a record high of 0.1%.

The first rate hike since late 2010 comes after Australian consumer prices rose at the fastest pace in two decades during the first quarter due to soaring petrol prices, home construction and food.

The higher benchmark rate – which reflects the interest banks charge on loans between themselves – means millions of Australians will face higher repayments on their home loans.

The average holder of a 500,000 Australian dollar ($355,000) mortgage could pay an additional 65 Australian dollars ($46) per month in repayment if banks pass on the higher interest rate in full, according to data from RateCity.

Mariano Kulish, an economics professor at the University of Sydney who previously worked at the RBA, said the central bank’s decision marked a “big change” from its relatively relaxed stance on inflation a few months earlier.

“I think there are two big elements,” Kulish told Al Jazeera. “The first is that the normalization of monetary policy has already begun in the United States. Advanced economies are affected.

“I think the last two readings of inflation…suggest they’ve had a very big surprise and they’re concerned that inflation is entrenching or becoming more persistent here, so that warrants acting on it. as soon as possible,” he said.

Tim Harcourt, chief economist at the Institute for Public Policy and Governance (IPPG) at the University of Technology Sydney, said the central bank had no choice but to announce a moderate rate hike, inflation well above its 2 to 3%. target.

“But it buys them space if the global economy slows down throughout the year,” Harcourt told Al Jazeera.

Australia’s annual inflation rate hit 5.1% in the January-March period, the highest since 2001.

Although widely expected, the RBA’s decision could have a significant influence on the trajectory of Australia’s upcoming federal election on May 21.

Prime Minister Scott Morrison’s Liberal National Party trails the centre-left Labor Party in the race, which is battling over a number of issues including the rising cost of living.

The RBA last raised interest rates in the middle of an election race in 2007, during John Howard’s failed bid to secure a fifth consecutive term in office.

Ahead of the RBA’s decision, Morrison said voters would understand that an interest rate hike would be due to world events, not his government’s handling of the economy.

“The situation Australia is facing is a situation facing the whole world and I think Australians understand that,” Morrison told reporters.

Reserve Bank Governor Philip Lowe said the combination of strong inflation figures and evidence of improving wage growth called for interest rates to normalize after years of emergency.

“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” he said in a post-meeting statement.

Australia is the latest Asia-Pacific economy to raise interest rates in recent weeks, after South Korea, Singapore and New Zealand.

Leslie M. Gill