The Reserve Bank of Australia raised its interest rate by 25 basis points to 4.6% on Tuesday, the highest level in 15 years, in a move aimed at containing high inflation amid domestic pressures and rising energy costs linked to the conflict in the Middle East.
Inflation exceeds target range
The decision was in line with the expectations of economists surveyed, taking the central bank's rate increases to a fourth this year and bringing the total increase to 100 basis points as inflation remained elevated.
The inflation rate remained above the target range of between 2% and 3% after peaking at 4.6% in March. Inflation stood at 3.5% in July, exceeding expectations, while August data are due to be released on Wednesday.
Inflation remains far too high Reserve Bank of Australia
Energy pressures and core inflation
The Reserve Bank of Australia attributed persistent inflation to domestic price pressures and higher energy costs resulting from the war involving Iran, pointing to evidence of indirect effects from energy costs that increase the risk of inflation becoming entrenched and persistent.
A Bank of America note published last week said inflation was accelerating rather than moving toward the target level, adding that “the July consumer price index data were the clearest evidence of this shift, reinforcing the pattern of rising core inflation in recent months.”
Concerns over slowing growth
The Reserve Bank of Australia warned that economic growth could slow as interest rates rise. The Australian economy grew by 2.1% in the second quarter, down from 2.5% in the first three months of the year.
