Australia Lifts Interest Rates, Pushing Mortgage Rates Higher

The Reserve Bank of Australia (RBA) on Tuesday raised its benchmark rate by 25 basis points to 3.1%. RBA Governor Philip Lowe cited persistently high inflation of 6.9% as the main reason for the hike. The central bank’s target inflation level lies between 2% and 3%.

This latest move comes after a smaller-than-expected 25 basis point hike in October that was different from the heavy-handed tactics of other central banks, like the US Federal Reserve.

After six previous hikes since May, the latest increase is set to add roughly 1,000 Australian dollars to the monthly cost of average mortgages.

Governor Lowe said he expected inflation to peak at 8% during the final quarter before easing next year, adding, “The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.”

Although inflation of 6.9% represents an uncomfortable figure, it was still down from September’s rate of 7.3%. Home prices in November fell for a seventh straight month, representing a handbrake on household wealth that could damage confidence and consumption in the coming months.

The RBA continues to preach that it remains steadfast in its determination to return inflation to targeted levels, stressing that it will do whatever is necessary to achieve that goal.

In further explanatory comments, the RBA noted that the labor market remains tight, with unemployment at 3.4% in October, a near-five-decade low, with many companies battling to hire workers.