Australia’s central bank raised interest rates for the first time in more than a decade on Tuesday, a hike intended to curb soaring inflation amid a pre-election backdrop.
The Reserve Bank of Australia raised its main lending rate by 25 basis points to 0.35%, the first rise since November 2010, citing the rapid rise in inflation to a higher level than expected.
The move puts the bank at the center of a heated political debate over the health of Australia’s economy, a few weeks before the May 21 election.
The opposition Labor Party saw it as evidence of the weakening economy and economic mismanagement by the Conservative government.
Prime Minister Scott Morrison, lagging in the polls, has insisted inflation is the result of global trends, including the war in Ukraine.
The annual inflation rate is currently 5.1%.
Like consumers around the world, Australians have been affected by soaring food and fuel prices.
But house prices have been rising for years while wages have stagnated.
Sydney and Melbourne are among the cities where the cost of living is the most expensive.
This rate hike will probably be followed by others, which could have serious consequences for the Australian economy, whose growth was once caught.
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Rising interest rates will mean higher borrowing costs for millions of Australians who are already heavily indebted.
According to financial services site RateCity.com.au, an interest rate of 2% would cost the average homeowner around $362 per month.
This is going to be hard to swallow for many borrowers, especially those who are already struggling to make ends meet, said Sally Tindall of RateCity.
Australia’s immense resource wealth – iron ore, gas and coal – has long shielded it from global financial headwinds and helped support a high standard of living.
But in early 2020, Australia’s economy slid into recession for the first time in nearly three decades, largely due to devastating bushfires and the onset of the Covid-19 pandemic.